Talking Tax: May 2022
Author: Matt Jeffery, Managing Director
With April seeing the start of a new tax year, it is usually a relatively quiet month for Zeal’s capital allowances team. However, we still managed to assist 28 different clients to identify claims for capital allowances, unlocking over £2.2m in unclaimed tax relief. Below is a summary of two interesting cases we worked on:
Capital Allowances Review – Private Landlord
Zeal carried out a capital allowances review of a landlord’s property portfolio. The client has been acquiring a mix of commercial and residential properties over the past 20 years and pays a significant amount of tax. Zeal identified five commercial property purchases that qualified for capital allowances (albeit some with restrictions). The properties ranged from office buildings to retail stores.
In total, we identified £276,977 of historical purchase costs as qualifying for capital allowances. As the owner is a higher rate taxpayer, the total tax savings amount to over £110,000. After paying Zeal’s fee, the client also received a cash refund of over £10,000 and has locked in significant future savings. Each year, his tax bill will be reduced using the allowances pool he has remaining.
Zeal are now exploring ways for the client to restructure his portfolio to be more tax efficient and give him a strategy to exit the business over the next few years.
Sale of Hotel
We were contacted by an accountant who was dealing with the sale of a Hotel in Exeter for a private client. They had been asked to provide responses to the capital allowances questions in the Commercial Property Standard Enquiries (CPSE) document. There is a section within a CPSE that the Vendor of a commercial property must complete to advise the Purchaser of what capital allowances have been claimed on the building to date. The accountant provided responses to the CPSE, but was challenged on the answers by the Purchaser’s advisors. Feeling they were out of there depth, they reached out to Zeal for help.
Zeal quickly identified that the Vendor had not claimed any capital allowances on the building’s embedded fixtures. We then acted for the Vendor to identify and secure all the capital allowances available. Using our experience and knowledge of dealing with, and negotiating capital allowances on commercial property transactions, we were able to agree a contract clause that enabled the Vendor to retain the benefit of the capital allowances.
Following a survey of the property, Zeal prepared a detailed Capital Allowances Valuation Report. Of the £1.6m purchase price paid for the building, £256k qualified for capital allowances. After offsetting £50k of the capital allowances for the loose fixtures & fittings they sold with the property, the Vendor will be able to make a £206k tax deduction in their final year of trading. Zeal’s tax team also prepared all the calculations to establish the cash benefit for the Vendor. The capital allowances claim created losses, which the Vendor was able to use against tax due in the final year of trading and against tax paid in the three years before sale. By the Vendor’s accountant reaching out to Zeal, their client saved over £40k in income tax and National Insurance contributions!
Do you have clients who own a Furnished Holiday Let?
The UK has seen a boom in ‘staycations’, driven initially by online letting agencies like Air B&B and then by travel restrictions due to Covid-19. This has resulted in a rise in people letting properties as self-catering accommodation. If a property is let furnished, is available for let for 210 days of the year, is actually let for 105 days and is not let consecutively to the same person for more than 30 days, they qualify as a Furnished Holiday Let’ (FHL). There are special tax rules for FHL’s. The most advantageous is the ability to claim capital allowances.
Claiming capital allowances on the purchase of a building used as a FHL is one of the most common claims we prepare at Zeal. Identifying the proportion of the building purchase price that can qualify for tax relief can be extremely valuable for the owners. However, the tax relief is often unknown to owners or overlooked by their advisors. Due to the relative size and value of FHL properties, they are often too small for most capital allowances firms to service, or they are too expensive for the owners to use! At Zeal, our business model has always been to help and support small businesses. A tax saving means so much more to them than a big corporation.
To highlight the benefits of claiming capital allowances on a FHL, we have some great examples of claims we have completed and positive feedback from our clients which you can view here.
Our team traveled to Glasgow in May for the FSB Celebrating Small Business Awards UK Finals 2022. As one of the Welsh regional winners, we represented Wales in the High Growth Business of the Year category. Although we didn’t bring home the trophy this time, we are still immensely proud to have made it to the UK finals.
The upcoming month of June is set to be an extremely busy month for Zeal, with several exhibition shows and association events including ChildCare Expo, The World Park & Leisure Home Show. We will also be preparing and submitting several more cases in readiness to reduce our client’s July POA.