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< Back to Latest News Studies Newsletter: Capital Allowances Update (Issue 20)

Talking Tax: August 2023

Author: Matt Jeffery, Managing Director

Last month our capital allowances team assisted 31 different clients to identify claims for capital allowances, unlocking over £4.4m in unclaimed tax relief.   This will result in cash tax savings for our clients of at least £880,000!

Below is a summary of some of the cases we worked on:

Capital Allowances Review – Commercial Landlord

Zeal achieved an excellent result this month for a client that had a large property portfolio that they have built up over the past 20 years.  The properties, which were a mix of residential and commercial property lets, were owned by three limited companies, an LLP and some personally.   The properties ranged from high street retail units with flats above, to pubs, banks and commercial units. 

Zeal carried out an entitlement review of the property portfolio to identify properties that would qualify for a capital allowances claim on part of the original purchase price or development work, post acquisition.  This included reviewing the legal documents (contracts & CPSE’s), Land Registry records and accounting information. 

In total, we identified 17 properties that qualified for a full or restricted claim.  This resulted in £707,724 of the original purchase costs qualifying for capital allowances.  This will result in total tax savings of £176,931.

Fast Food Restaurants – Unlocking Tax Savings Before Sale

Zeal achieved a great result last month for a Medical Centre in South Wales.

We have a fantastic result last month for a client that was selling their fast-food business.  By engaging Zeal during the sale process to identify any unclaimed capital allowances, our client received a corporation tax refund of over £120,000! 

Am accountancy practice that use Zeal to provide high value capital allowances advice to their clients identified an opportunity for one of their clients to review their historical capex on the purchase, construction and refurbishment of their Burger King restaurants.  During the sale process, the capital allowances position was raised by the Purchasers advisors.  Zeal were asked to discuss and negotiate the position on behalf of the Vendor.  As we were engaged early during the process, Zeal were able to agree a nominal figure on disposal of the building fixtures.  This meant the Vendor, our client, could retain the tax benefit of all claimed and UNCLAIMED capital allowances.

Zeal then carried out a review of the accounting records and identified that capex on the purchase of two sites, the construction of two sites and two refurbishment projects qualified for capital allowances.  Zeal liaised with the clients building contractors, architects, commercial property agent and accountant to obtain all the relevant information we required to prepare the capital allowances claims.  Zeal drafted the reports, amended the relevant corporation tax returns and submitted them to HMRC.  

In summary, the claims identified almost £1m in unclaimed capital allowances. The majority of the allowances were due to the trading company that ceased trading following the sale of the properties.  This enabled the company to obtain a tax deduction for all the qualifying expenditure in the accounting period it ceased to trade.  This resulted in a cash repayment of just over £120,000!  The balance of the tax savings will be received by a property investment company that will receive the tax savings each year going forward. 

Both the client and our accountant partner were thrilled with the result and the swift and professional manner of the team at Zeal.

Construction of a Holiday Let

Zeal’s partnership with Sykes Holiday Cottages and its sister brands means we regularly assist holiday let owners to maximise the tax relief on the capital investment in their holiday let properties.  This includes claiming capital allowances on the property purchase price, construction, conversion or refurbishment costs.

Last month we helped several holiday let owners generate valuable tax savings.  One stand out case, however, was the costs a holiday let owner had incurred to build a property for holiday letting.

The property, which is located in the beautiful Lochaber, in the Scottish Highlands, was constructed in 2021/2022 for a total cost of £287,228 (excluding land cost).   A contractor was used to construct the property and complete the CAT A & CAT B fit-out (this means it included all the main utility services, kitchens, bathrooms etc).  No detailed breakdown of the contractors’ costs were available.  This is very common as contractors will generally only supply stage payment invoices.  

Unsing our inhouse team of surveyors, Zeal were able to prepare a capital allowances report, in a format that is acceptable by the Valuation Office Agency (VOA) and HMRC.  

In summary, Zeal identified £72,588 of the £287,228 costs as qualifying for capital allowances.  As the owner is a higher rate taxpayer, this resulted in income tax savings of £29,035.

What is a section 198 election?

One the most common questions we get asked about capital allowances what is a section 198 election or how do I complete it?   

In short, a CAA2001 s198 election, is a joint election between the Buyer and Seller of a commercial property, which agrees the value of the total sale price that will relate to the buildings embedded fixtures.  A Seller would want the value to be as low as possible and the Buyer as high as possible.  

We have summarised below some key points to be aware of:

  • Election is only relevant is the Seller HAS claimed capital allowances on the buildings fixtures
  • Election is not applicable to chattels.  Loose fixtures & fittings, equipment and machinery DON’T for part of the s198 election.
  • S198 Elections DON’T reduce the consideration for SDLT (or equivalent)
  • There is a 2 year period after sale to be able to complete a s198 election
  • In most cases, the Buyer will not be able to claim any capital allowances without a s198 election 
  • If the sale is of a long lease, the election would be a CAA2001 s199 election

When, how and for how much a S198 election should be included in a sale contract of a commercial property will depend on the specific circumstances of the transaction.  Zeal offer a free capital allowances review for Buyers or Seller sof commercial property.  Get in touch with the team at Zeal if you need our assistance to maximise the tax relief on a commercial property.

Stamp Duty Land Tax (or equivalent)

Our SDLT specialist have been advising on a number of cases this month.  This has included providing advise during the acquisition process or reviewing the SDLT paid on completed purchases. 

In one case, a client was purchasing a new home near Kent for £1.8m.  The purchase included a large detached house, which included a separate ‘granny annex’.  One wing of the main house (with a separate entrance) was converted and used by the previous owners as office accommodation. The new owner will let the office accommodation on a normal commercial lease and also utile the annex as a holiday let.  

Utilising the various SDLT reliefs and exemptions, Zeal were able to reduce the SDLT due by over £70,000!

VAT – Good News for Serviced Accommodation/ Holiday Let Properties

A recent FTT case around the use of the Tour Operators Margin Scheme (TOMS) was found in favour of the taxpayer.  This will enable many suppliers of serviced accommodation using TOMS to breathe a sigh of relief (for now).  However, the case is likely to create an opportunity for similar business and holiday let owners to benefit from the opportunity to significantly reduce or eliminate VAT liabilities.  Click here to find out more.  

A brief summary of other clients we have helped this month….

Purchase of Hotel

Purchase date: 2004
Purchase price = £515,000
CA’s identified = £133,455
Tax saved = £38,702

Purchase of 2 Children’s Homes

Date: 2023
Total cost = £1,032,500
CA’s identified = £239,180
Tax saved = £59,795

 Purchase of 2 Industrial Units

Date: 2021 and 2023
Purchase price = £910,000
CA’s identified = £128,099
Tax saved = £32,024

For help with Embedded Capital Allowances or Specialist Tax Advisory, please contact Zeal on hello@gozeal.co.uk or 01633 287898.