Capital allowances in commercial property

Businesses that incur expenditure on qualifying assets in let property may be entitled to capital allowances. Typically the assets will be plant & machinery and fixtures & fittings.

There are a number of different categories and allowances available: –

Annual Investment Allowance (AIA)

This is a capped 100% allowance for plant, fixtures, etc but excludes cars. The allocation of AIA between the assets is at the business’ discretion; it is normally advantageous to allocate the AIA against assets otherwise entitled to lower rates of relief.

For accounting periods that fall wholly between 1 April 2014 and 31 December 2015, the AIA is £500,000. Accounting periods straddling these dates, or of less than twelve months, have a pro-rated entitlement.

The allowance has to be shared between groups or related companies and businesses.

AIA cannot be claimed on an asset acquired from a connected person nor in partnerships with any member other than an individual.

Enhanced Capital Allowances

100% relief is given on ‘green’ assets including energy and water efficiency – see www.eca.gov.uk

General pool

This covers plant & machinery and fixtures & fittings that are not integral features (as below) and qualifies for writing down allowances at 18% on a reducing balance basis.

Short life assets (SLAs)

These are assets that are expected to be sold or scrapped within eight years. Businesses owning SLAs may make an election such that, if the proceeds of disposal within the eight year period are less than the tax written down value, a balancing allowance is available. This can significantly advance tax relief.

Long life assets

These are assets with an expected useful economic life of at least 25 years; they qualify for a reduced writing down allowance of 8%.

Integral features pool

This provides for writing down allowances at 8%, it includes assets in the following list:

• Electrical systems (including lighting)
• Cold water systems
• Lifts, escalators and moving walkways
• Space or water heating systems, ventilation, air cooling and air purification systems
• External solar shading
• Active facades

Toilet and kitchen facilities are not included in the list so therefore qualify for the 18% rate available on general pool assets.

Second-hand commercial property

Generally, a buyer of previously used commercial property must agree with the seller the value of the fixed plant in the building – this cannot exceed the original cost claimed. The agreement is evidenced by an election that must be made within two years. If agreement cannot be reached the purchaser will have to go to a Tax Tribunal for a ruling if it wishes to pursue a claim.

If the seller did not claim allowances and is not prepared to make a claim before the sale, the purchaser (and any subsequent purchaser) is debarred from claiming relief.

However, integral features were introduced only from April 2008 and so for some older properties these costs are not subject to the election but may be claimed on a proportion of the price.