Explaining capital allowances for property owners
Explaining Capital Allowances for Property Owners
Capital allowance provides a good way to reduce your tax liabilities through the claim of deductions on some of the property-related expenses that you incur.
They, therefore, enable you to deduct the cost of capital expenditure-plant, machinery, and certain fixtures-against your taxable profits, especially in instances when you have invested in commercial properties or made major improvements.
Who Qualifies to Make a Claim?
If you are an income-earning property owner, then you can claim for capital allowances.
It includes:
- Commercial landlords – Those who let office space, shops, or warehouses.
- Investors – Those who purchase commercial properties for refurbishment and subsequent rental or sale.
In case of doubts, it is best to contact your accountant and ask them if you qualify for such an allowance.
What are the types of capital allowances?
There are various capital allowances available for property businesses in the UK, each with its own rules and requirements; mainly because each asset is used for different reasons or purposes.
The specific rules will help ascertain that a fair number of businesses can claim relief according to the nature and length of their investments, foster improvements, and prudent spending habits.
Some of the most used allowances include:
- Annual Investment Allowance (AIA) – This allows you to claim 100 per cent of the cost of the qualifying asset, such as machinery and equipment, up to £1 m in the year of purchase, and it is excellent for immediate tax relief.
- Writing Down Allowance (WDA) – Where an asset is too valuable to come under the AIA limit, WDA allows you to write down a percentage of the asset’s value that is left over every year. You therefore claim your tax relief over several years.
- Enhanced Capital Allowances (ECA) – If you invest in energy-efficient equipment, you can offset 100 per cent of the cost in the year you buy it by using ECAs, encouraging you to be environmentally friendly.
- Integral Features Allowance: This allows you to claim capital allowances against integral features in the building, namely the heating and ventilation system, over a longer period.
- Structures and Buildings Allowance: It is an allowance of 3% every year that a business is allowed to charge on the costs of constructing or renovating non-residential buildings and structures. This SBA aims to persuade investment into more and better-structured business infrastructure.
- Full expensing: The full expensing system allows businesses to immediately write off the entire cost other words, 100% of qualified machinery in the same year the particular item is purchased. This acts as a method of deducting the full cost in one go and encourages investment in business growth.
If you’re not sure which of these you can claim, speak to one of our accountants. They’ll work out what you’re entitled to and ways to cut your tax bill.
How do you make a claim?
The first step in claiming capital allowances is to identify what expenditure qualifies and to gather any receipts or invoices you’ll need.
Then, work out your claim, put it on your annual tax return, and, again, everything will be OK, and this avoids headaches.
Your next steps
It is crucial for an experienced or first-time landlord to be smart about capital allowances if one wants to enhance his property’s profitability to make sure that financial success is attained.
Which means, by claiming the allowances you are entitled to, your bill of tax is reduced and you can reinvest those savings back in your property or any other venture.
For any query or if you need help regarding the claims about capital allowance then our expert team is always ready to help you, get in touch with us today.
