Property & Capital Allowances

You can claim capital allowances when you buy assets that you keep to use in your business, eg equipment, machinery, business vehicles. These are known as plant and machinery.  In most cases you can deduct the full cost of these items from your profits before paying tax using the annual investment allowance.  It is normally straight forward to establish if the expenditure will qualify as plant and machinery.

However, it can be difficult to determine whether expenditure relating to buildings will qualify for capital allowances. In general, land, buildings and structures cannot be plant. However, the concept of ‘integral features’ of a building or structure was introduced to classify expenditures within a building that are plant and therefore qualify for capital.  These include –

• lifts, escalators and moving walkways
• space and water heating systems
• air-conditioning and air cooling systems
• hot and cold water systems (but not toilet and kitchen facilities)
• electrical systems, including lighting systems
• external solar shading

In relation to property, HM Revenue and Customs also provide guidance as to what is deemed Buildings (no capital allowance available) and what is deemed Plant (capital allowance available). The most common of these are as follows –

Assets treated as buildings

• 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
• Fire safety systems

Assets treated as Plant

• Manufacturing or processing equipment; storage equipment (including cold rooms); display equipment; and counters, checkouts and similar equipment
• Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings
• Sound insulation provided mainly to meet the particular requirements of the qualifying activity
• Computer, telecommunication and surveillance systems (including their wiring or other links)
• Refrigeration or cooling equipment
• Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires
• Burglar alarm systems
• Partition walls, where moveable and intended to be moved in the course of the qualifying activity
• Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades
• Advertising hoardings; signs, displays and similar assets
• Cold stores

Capital Allowances are very valuable to tax paying property buyers. Capital Allowances represent tax savings and they should, therefore, result in a higher sale price, or at least be recognised as a positive attribute by the buyer that makes the property more attractive as an investment. For these reasons, property developers should consider Capital Allowances when they are selling their developments.

If you are looking for advice, support or further information, please contact Steven Todd via steven.todd@eqaccountants.co.uk or call 01592 630055.