Commercial buildings are usually fitted out with fixtures, such as electrical wiring, lifts, water, heating and air conditioning systems (“integral features”). Tax relief on these systems could lead to significant savings, but in order to claim Capital Allowances on fixtures, there are strict conditions that must be met.
Broadly, there are two important requirements:
The previous owner(s) of the building must have elected for the fixtures to be in their capital allowance pools; and
Both parties must agree the value of the fixtures in a joint s.198 election.
If these conditions are not met, you cannot claim any capital allowances on the fixtures, so when buying a second-hand commercial property, it is vital the contract includes confirmation of what capital allowances have been claimed on fixtures. Also, a s198 election should be signed on completion.
As well as allowances on fixtures, relief may also be available on the cost of the building itself. Structures and Buildings Allowance (SBA) was introduced with effect from 29 October 2018, provided construction of the building did not commence before that date. Even then, it may be possible to claim SBA on modification and remedial works to older properties.
SBA is an annual tax allowance of 3% of qualifying costs (2% until April 2020), available on capital costs of purchase, construction or renovation of eligible non-residential structures and buildings. The allowance is available from when the property is first brought into qualifying use. To claim, the actual amount of qualifying expenditure must be identified; estimates are not permitted, so it is important to capture the qualifying costs up front for each property where a claim is possible.
The SBA claim must be supported by an allowance statement, which includes the details of the building or structure and costs claimed. This statement should be maintained for each qualifying property throughout its 33-year SBA life and included in the legal documents provided to a purchaser of the property.
As you can see, it is important that capital allowances are high on the agenda at the very start of the purchase process, otherwise you may miss out on potentially very valuable tax relief. If you need any help with this, Ensors is here to assist.