< Back to Latest News Studies Newsletter: Talking Tax Issue 21 (September 2023)

September 2023

Capital Allowances Update

Unlocking Capital Allowances for a Commercial Property Purchaser

Our team were contacted by a firm of Chartered Accountants who regularly work with Zeal when their clients need expert capital allowances advice. As one of their clients was purchasing an office building, they asked us to investigate if there was any scope for their client to claim capital allowances tax relief on part of the purchase price. Zeal offer this service on a success fee basis, meaning if we were unable to secure any capital allowances, there would be no fee payable.

Zeal carried out a free review of the contract documentation, in particular the Vendors answers to the capital allowances questions within the CPSE (Commercial Property Standard Enquires). The answers confirmed that the Vendor had not yet claimed any capital allowances on the building’s ’embedded fixtures’. Zeal acted on behalf of the Purchaser, negotiating the transfer of unclaimed capital allowances.

Our team was successfully able to agree with the Vendor that the benefit of these unclaimed allowances were passed on to the Purchaser. To ensure that the transaction was not held up by the capital allowances claim, Zeal provided a contract clause that bound all parties to the agreement, if completed post sale. 

Fortunately, Zeal was able to survey the property and supply the Vendor with the capital allowances valuation report prior to completion, so the relevant capital allowances election could be included in the contract and all matters could be completed in advance of the sale. In summary, Zeal identified £115,228 of expenditure qualifying for capital allowances. This will result in corporation tax savings of at least £21,900. This was a great result for the client, who was very grateful to their accountants for introducing them to Zeal!

Whilst in this instance the Vendor was very co-operative, in our experience, this may not have been the case if the sale had already completed. Whilst there is a 2 year window after sale where the capital allowances position can be agreed, this is a great example showing why raising and dealing with CA claims at the point of sale is extremely important and valuable.

Extension of a Hotel – SBA’s claimed incorrectly!

This month, we helped a client who had spent around £250,000 to extend their hotel building. Their accountant had advised that they had already claimed all the costs and upon inspection, our team could see that they had – however, they had claimed them incorrectly!

Structures & Buildings Allowances (SBA’s) provide an annual deduction of 3% a year of the total qualifying costs. SBA’s generally relate to structural building works that don’t qualify for a capital allowance. For example, floors, walls and ceilings etc. Although claiming SBA’s on the total project cost will give you tax relief for all the costs incurred, there are two major issues with this claim. 

Firstly, SBA’s can’t be claimed on items of ‘Plant & Machinery’ (P&M). P&M on buildings includes embedded fixtures such as electrical, heating and ventilation systems, sanitary ware, kitchens alarm systems etc. By identifying the P&M within the total project costs, this will significantly accelerate the speed of which the tax relief is received. Under SBA’s it takes 33 years, under P&M it can all be received in year 1!  

Secondly, SBA’s are only received in full if you hold the asset for 33 years and even then the tax relief is effectively repaid on disposal of the asset. On sale of a building that has been subject to an SBA claim, any SBA’s claimed are added to the disposal proceeds that are subject to CGT.

Fortunately for our client, the corporation tax return that the SBA claim was made in was still in time to be amended (2 years after the company year end). By amending the claim, our team were able to reduce the SBA’s claimed by £69,979 and generate a corporation tax refund of £12,897 (plus credit interest accrued).

Airbnb Owner Sitting on Thousands of Unclaimed Tax Relief

We had a fantastic result this month for a holiday letting business based in the South West. They had purchased 6 residential properties over the past 10 years, which they let as self-catering accommodation via Airbnb. The properties were a mix of city centre apartments and two new build houses on a residential estate.

In summary, we identified £248,253 of the total purchase cost as qualifying for capital allowances which will result in income tax savings of £99,300 for the owners, who are higher rate taxpayers! This was a fantastic outcome for our clients, who were thrilled with the result. They could not believe they were entitled to almost £100,000 in tax savings and were extremely grateful to Zeal! 

Unfortunately, it is a common theme that owners of Airbnb / Holiday Let properties are totally unaware of the tax relief they can claim on the cost of their properties. With profit margins being squeezed for these business owners through rises in interest rates, utilities and council tax, there is no better time to review their capital allowances position.

Through our partnerships with companies like Sykes Holiday Cottages and their sister brands, each month Zeal are helping more and more holiday let owners unlock the tax savings available on the purchase, refurbishment or construction of their holiday let properties. If you own a self-catering property, contact Zeal today to see how much tax relief you may have missed! If you have clients or contacts, refer them to Zeal and help them save tax!  

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

Specialist Tax Advice Update

Stamp Duty Land Tax (SDLT)

Our SDLT specialists have been advising on a number of cases again this month. Zeal reviewed two acquisitions of large residential properties with ‘annexes’, which is essentially a self-contained dwelling. If the purchase of a site contains 2 dwellings, then the SDLT (or equivalent) payable can be significantly reduced by claiming Multiple Dwellings Relief (MDR). Whilst in both cases, the annexes had all the facilities required to eat, wash and sleep, we concluded that there was no scope to claim on the site where the annexe was physically attached to the main residence. 

Although it had a separate entrance, it could be accessed through the main house (albeit the door was lockable). Given the recent cases that HMRC have successfully appealed at Tax Tribunals (Fiander V HMRC Merchant v HMRC and Mr & Mrs Doe v HMRC), there would be insufficient privacy and security between the annexe and the main residence for MDR to apply. Our client suggested that they could block up the adjoining door to overcome this hurdle, but this could only be done post purchase. As the SDLT relief would apply to the physical attributes of the property at the date of purchase, blocking up the door after, would not enable them to make a claim.

The second property had an annexe that was a separate building and could be accessed without any detriment to the privacy and security of the main house residence. As a result, this qualified for MDR, reducing the SDLT payable by over £15,000!

Capital Allowances Training for Commercial Property Solicitors

Capital allowances on the sale and purchase of commercial properties is a specialist area of taxation. Solicitors generally rely on their clients’ accountants to provide the capital allowances advice required. However, in many cases, the accountants are not familiar with this tax legislation and how to apply it. As a result, claims for capital allowances are often overlooked or transacted incorrectly. This can risk clients missing out on valuable tax savings and solicitors leaving themselves open to litigation.  

Zeal have recorded a CPD qualifying training session for commercial property conveyancers. The session provides an overview of capital allowances, how they apply to commercial property transactions, what to do if you act for the Vendor or if you act for the Purchaser, opportunities to look out for and common mistakes we come across. If you would like to access the recording, please contact us hello@gozeal.co.uk.   

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 of commercial property. Get in touch with the team at Zeal if you need our assistance to maximise the tax relief on a commercial property.

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

R&D Tax Credits Update

Most of this information was normally contained in an accompanying report, however, there are some parts that wouldn’t ordinarily have previously been provided such as a company’s VAT and PAYE reference number. Despite a lot of PR around the new form and that all claims would be rejected without one, it was reported that after 4 weeks since implementation, almost half of all claims were submitted without the required AIF – therefore invalidating the claim.

If you would like to discuss this form or how Zeal can assist any clients you are working with, please contact Adam on adam@gozeal.co.uk.