How to make the most of capital allowances

Capital allowances are a form of tax relief available to anyone that incurs capital expenditure when buying, building or refurbishing commercial properties. In the case of hotels, B&Bs, pubs and restaurants, this could include anything from lifts and lighting to kitchen facilities and security.

What could they be worth?​

Recently, a London hotel purchased for approximately £15m identified capital allowances circa £5.8m, ultimately leading to a benefit to the client of almost £1.9m. While this particular case is at the upper end of the scale, the average claim across the UK hotel and guesthouse sector is around £143,000 – an amount that any property owner would gladly benefit from.

Shouldn’t my accountant have identified these allowances already? ​

Capital allowances are a particularly complex area of tax relief - most commercial property owners and, indeed, their representatives, are unaware of the potentially significant financial gains to be had.

In our experience, accountants generally only scratch the surface of the potential that a building (or buildings) may have. On the other hand, a specialist will undertake a detailed forensic survey of the property to determine exactly what is available, not just the obvious superficial costs but also the more in-depth items where more significant outlays can be found e.g. cabling, heating and air conditioning.

If I don’t have sufficient taxable profits to benefit from capital allowances, is it worth going through the process?​

Yes, for two reasons. Firstly, if you have profits elsewhere within a group of companies, the capital allowances can be set against them.

Secondly, when the business becomes profitable and you have offset all your brought forward tax losses, the capital allowances will be invaluable. It is also possible to “disclaim” many of these allowances i.e. identifying and quantifying the amount qualifying for relief upfront but choosing to defer claiming the relief until it’s actually required.

Are there any time restrictions?​

Yes, there are now. As a result of the Finance Act 2012, from April this year, capital allowances must be identified at the point a commercial property is bought or sold otherwise they could be lost permanently.

Figures from HMRC for the six months since the policy was implemented show that somewhere in the region of £160m has now been lost to commercial business owners, including the hospitality industry.

So, sizeable amounts of money that might have been used to spruce up hotels or add extensions to guesthouses have been lost, and more may follow.

Will this have any effect on my capital gains tax or reduce the value of my property?​

No, capital allowances are your right as a commercial property owner, not a privilege. As such, they will have no effect on the capital gains tax or value of your property.

What should I do next?​

Quite simply, if you are a UK taxpayer and you own your business premises and / or have made improvements to one, speak to a specialist to conduct a capital allowances evaluation and ensure you claim what could rightfully be yours.