Capital allowances on commercial properties

Within commercial properties there are a number of items that might qualify for favourable tax relief. In relation to property construction, capital allowances may be available to a taxpayer on certain capital expenditure, regardless of age, specification or interest held.

Capital allowances reduce the amount of tax paid by either an Income or a Corporation Tax payer, directly resulting in a cash benefit to the business. You must be using the qualifying assets in the course of the trade and must be able to demonstrate ownership.

Below is a sample list of common items in buildings that will typically qualify for capital allowances;

• air conditioning systems (as integral features)
• burglar alarms, fire alarms systems; sprinklers & other equipment for extinguishing or containing fires
• carpets
• central heating systems (including boilers, radiators, etc.) (as integral features)
• cold water systems (as integral features)
• cupboards
• décor (but only in hotels and similar establishments where selling atmosphere is part of the trade)
• display equipment
• electrical installations (as integral features)
• furniture (fitted)
• gas systems (as integral features if part of a space or water heating system)
• hot water supplies (as integral features)
• lighting systems (as integral features)
• partitions, but only if moveable and intended to be moved
• shelving.

There will also be exceptional cases where the items shown do not qualify, however it serves as a starting point in considering many items that are likely to be the subject of a claim.

The following assets however are treated as buildings, and therefore capital allowances are not available;

• walls, floors, ceilings, doors, gates, shutters, windows and stairs
• mains services and systems for water, electricity and gas
• waste disposal systems
• sewerage and drainage systems
• shafts or other structures in which lifts, hoists, escalators and moving walkways are installed. The actual lift and escalators may themselves qualify for capital allowances
• fire safety systems.

From 29 October 2018, the Government introduced a Structures and Buildings Allowance for new non-residential structures and buildings. This new relief, given at a flat rate of 2% over a 50-year period, should cover expenditure that does not qualify for capital allowances.

We encourage you to ask your contractor, where possible, to split their invoices between the expenditure qualifying for capital allowances and qualifying expenditure for Structures and Building Allowance to enable you to maximise the tax deduction.

If you would like to discuss any issues affecting your property or construction business, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.

Alternatively, if you would like further information on capital allowances, and the amounts that can be claimed, please contact our Commercial Property Taxperts.