Talking Tax: May 2023
Author: Matt Jeffery, Managing Director
Last month our capital allowances team assisted 26 different clients to identify claims for capital allowances, unlocking over £2.4m in unclaimed tax relief. This will result in cash tax savings for our clients of at least £480,000!
Below summaries a few of the cases we worked on:
Capital Allowances Review – Holiday Lets
Zeal carried out a capital allowances review of the expenditure incurred to purchase, construct and refurbish buildings used for holiday letting. Since 2017, our client had invested around £1.1m in their holiday let properties. No tax relief had previously been claimed on any of this expenditure.
In summary, of the £1.1m expenditure incurred, our review identified £210,542 qualifying for capital allowances. This will equate to total income tax savings of £84,216. In addition, a cash repayment of tax paid for 2021/22 totaling £12,168 was received.
Purchase of a Kennel & Cattery
Our client had recently purchased a Kennels & Cattery and had been advised by another capital allowances firm that a claim could not be made because the purchase had completed and a capital allowances election would have been required in the purchase contract.
Zeal reviewed the contract and ownership history, which confirmed that there was no capital allowances election in the contract and also established that the site had previously been acquired by the Vendor in 1999. On this basis, our team concluded that an Integral Features Refresh (IFR) claim could still be made on our clients purchase price of £900,000 (excluding SDLT & legal fees).
Although an IFR claim is heavily restricted, Zeal was able to identify £62,107 of expenditure qualifying for capital allowances. As the claim was made in the first year of trading, it increased the losses in the first year. The losses were then carried back against tax paid by the client on PAYE income in the 3 years before the business started. As the client had paid significant tax in their employment before they started the business, a cash refund of £22,300 was received.
Purchase of Vehicle Repair Centres
We were referred a client who owned two vehicle repair garages. One of the sites was acquired in 2005 for £217,000 and the other in 2007 for £500,000. The properties were let to the owners limited company.
Zeal carried out site surveys on the two properties and identified that £136,235 of the total purchase consideration qualified for capital allowances. As the owners paid tax personally at the higher rate of 40%, the capital allowances will generate total income tax savings of £54,494. By making the claim in amended 2021/22 tax returns, a cash repayment of £5,578 each was received.
Our clients and their accountant (who had referred them to Zeal), were delighted with the result and also pleasantly surprised at how straight forward the process was.
Structures & Buildings Allowances – Be Aware!
Structures & Buildings Allowances (“SBA”) were introduced from 1 April 2020. They provide a capital allowance deduction of 3% per annum for expenditure incurred on the purchase, construction or renovation of buildings and structures. SBA’s generally relate to building or construction work that would not normally qualify for plant & machinery capital allowances e.g. the structural elements of an extension.
Whilst SBA’s can provide valuable additional tax relief, they should be claimed with caution. On sale of an asset that SBA’s have been claimed on, the SBA’s claimed are added to the disposal proceeds for Capital Gains Tax (CGT) purposes, increasing the CGT payable as any tax relief previously claimed could be repaid! This is particularly the case for limited companies, where CGT is paid at the standard corporation tax rate.
Zeal have recently come across two cases where the Taxpayer was not made aware by their advisors of the tax consequences of claiming SBA’s when they sell. In both cases, the owners were left with unexpected tax bills!
We have also come across several cases where advisors are allocating all refurbishment or construction costs to SBA’s. This expenditure includes costs for assets that would qualify for plant & machinery capital allowances, which generally get a 100%+ tax deduction and are not subject to the same rules as SBA’s when you sell them. By allocating all building construction and renovation costs to SBA’s, clients are paying more tax now and in the future!
SBA’s are a welcomed addition to the capital allowances regime and do provide a valuable cash flow benefit to many businesses if they are claimed correctly. Please contact a member of the Zeal capital allowances team for more information.
Stamp Duty Land Tax
In April our team submitted 3 claims for overpaid Stamp Duty on the purchase of buy-to-let properties. The claims for overpayment ranged from £4,000 to £12,000. If accepted by HMRC, we will receive the repayment within 30 days of submission.
Zeal’s Stamp Duty team also helped reduce a clients SDLT charge on the purchase of a second property from £82,000 to only £23,000. As the client’s solicitor had completed the SDLT return on the basis that the property was the purchase of a second residential dwelling, the 3% surcharge was applied. However, the property had 3 separate buildings, one of which provided office accommodation. This enabled the property to be treated as a ‘mixed-use’ property and subject to non-residential SDLT rates.
If you have bought a property in the last 4 years or are about to buy a property, its worth checking with Zeal if the tax charge has been calculated correctly!
For help with Embedded Capital Allowances or Specialist Tax Advisory, please contact Zeal on firstname.lastname@example.org or 01633 287898.