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< Back to Latest News Studies Newsletter: Talking Tax Issue 22 (October 2023)

October 2023

Capital Allowances Update

Author: Matt Jeffery, Managing Director

Last month our capital allowances team assisted 24 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 is a summary of some of the cases we worked on:

Capital Allowances Review – Children’s Homes

Zeal have had a lot of success helping care businesses unlock significant tax savings from their investment in their trading properties. This month, we identified over £88,000 in unclaimed capital allowances tax relief for a residential child care services provider.

Our client had spent approx. £2m over the past couple of years to acquire properties for use as children’s homes. Zeal identified that 6 of the 9 properties bought were residential dwellings at the time of purchase. The other 3 properties were purchased as existing care facilities. As there are was no restriction for prior claims on the residential properties, the company had entitlement to make full capital allowances claims on part of the purchase price that related to the ’embedded fixtures’ purchased with the property.

In summary, of the total £1.2m incurred on the qualifying properties, Zeal identified £263,012 qualifying for capital allowances.  This resulted in a cash rebate of corporation tax paid of £43,719 and future savings of £13,271.

Capital Allowances Review – Commercial Property Investor

Zeal achieved an excellent result this month for a client that invests in commercial property.

Having previously completed a case for a different client, the property investor’s accountant reached out to Zeal to see if they could assist some more of their clients with capital allowances claims.

The client had a portfolio of 9 commercial properties which had been acquired over the past 10 years. The properties were mainly office buildings, but also included some warehouse units and high street retail units.

Zeal carried out an entitlement review of the client’s 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 4 properties that qualified for a full or restricted claim. This resulted in £385,295 of the original purchase costs qualifying for capital allowances, which will generate total corporation tax savings of up to £96,324.

Conversion of outbuildings to Holiday Accommodation

As the tax partner of Sykes Holiday Cottages, Zeal help holiday let owners take advantage of unclaimed tax relief available on the purchase, construction and renovation of buildings used for holiday letting.

This month we helped several holiday let owners realise tax savings they were unaware of. One in particular was a client who had spent just over £400,000 to convert two old barns to holiday accommodation in 2015. They started the holiday let business in 2016 and now have a very profitable business.

The client had never claimed any tax relief for the conversion costs. Their understanding from their accountant was that it was capital expenditure that will be set against CGT when they sell the property. This was half correct. The total cost can be set against CGT in the future BUT they could also have claimed capital allowances on the qualifying element of the conversion works, to reduce income tax on the annual profits. As long as the property is not sold at a loss, there will be no change to the costs they can set against CGT.

Zeal carried out a survey of the property and collated cost information from the client which they had received from the building contractor. Following the survey, Zeal prepared a detailed capital allowances report that identified £142,312 of expenditure qualifying or capital allowances. As the owners were higher rate taxpayers, this will save them income tax of over £57,000! A great result and a very happy client.

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

Purchase of a B&B

Purchase date: 2009
Purchase price = £222,000
CA’s identified = £42,007
Tax saved = £12,182

Hotel Refurbishment

Date: 2018
Total cost = £1,116,000
CA’s identified = £306,243
Tax saved = £76,500

Purchase of Dentist Practice*

Date: 2020
Cost = £335,000
CA’s identified = £75,174
Tax saved = £14,283

*residential conversion

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

Capital Allowances Training for Commercial Property Solicitors

Our training session for commercial property conveyancers is now live. To find out more and access the free CPD accredited training session, please click the register button.

Specialist Tax Advice Update

Tax Avoidance Spotlight 63

Last month HMRC published Tax Avoidance Spotlight 63: ‘Property business arrangements involving hybrid partnerships.’ The spotlight covers a much-publicised scheme being marketed as a tax planning option for individual property landlords which is being referred to as a ‘hybrid business model’.

The arrangements seek to avoid tax by allowing individual or joint property landlords to transfer their properties to a Limited Liability Partnership (LLP) with a corporate member, with the LLP then allocating profits to its members on a discretionary basis. The scheme providers claim that the arrangements allow landlords to:

  • Avoid Mortgage interest relief restrictions allowing increased deductions for such interest.
  • Reduce the tax payable on profits generated by the property business.
  • Reduce Capital Gains Tax (CGT) when the properties are sold.
  • Reduce Inheritance Tax (IHT) payable in respect of the properties on death.

HMRC’s view is that the scheme does not work and have advised anyone involved in such a scheme to contact them to discuss how they can settle their position by emailing spotlight63@hmrc.gov.uk and to consider taking independent professional tax advice. 

Zeal’s view is that this action by HMRC is long overdue. There have been a number of providers in the market for many years, offering these schemes with the promise of it being rubber stamped by tax barristers and meeting all the relevant tax legislation. These so called ‘experts’ have convinced thousands of landlords that the tax planning is legitimate and charged significant fees in doing so. Zeal has always maintained that the advice is flawed and would not stand up to scrutiny by HMRC. 

Whilst the advice does amount to a tax avoidance scheme, there are legitimate ways that property portfolios can be restructured to minimise current and future tax liabilities. 

If you or your clients/contacts are caught up in Spotlight 63 or want to discuss the tax efficiency of their property portfolio, contact the team at Zeal on 01633 287898 or hello@gozeal.co.uk.