Capital Allowances

Most tax payers regularly claim tax relief on capital expenditure. However, ensuring that these capital allowances are maximised can be a difficult exercise, to add complexity to the challenge, both legislation and case law are constantly changing regarding how types of capital expenditure are treated.

In the case of a second hand property purchase, the construction cost information can be minimal or even non existent. In these circumstances an advisor who has both construction and tax knowledge is required to survey the property, then make assessments to provide the information required to make a capital allowances claim.

Positive Tax Solutions have created an alliance with Lovell Consulting in order to provide their clients with specialist capital allowances advice.

The professional team at Lovell Consulting work soley on capital allowance cases, they all are dual qualified in both quantity surveying and taxation. This combined expertise enables them to identify the more unusual types of qualifying expenditure, which is usually overlooked.

Lovell Consulting provide capital allowances advice to private clients, property investors and large multinationals across a wide range of industries. They can usually increase the value of capital allowances by between 20% and 30%. 

They have good relationships with HMRC and the Valuation Office, which often means faster and advantageous settlement of capital allowances claims. They boast that in thirteen years of operating they have never had a claim rejected.

Many clients wrongly assume that if capital allowances are not made in the year of expenditure the capital allowances are 'lost'. However, Lovell Consulting point out, as long as the property is still owned by the client, a capital allowances claim can be made a number of years later, and the original tax return does not have to be reopened.

Obtaining capital allowances advice can be really useful at either at the initial stages of a building or renovation project, or prior to the purchase of a property.

With the increasing complexity of real estate transactions, consideration of capital allowances entitlement, and having a thorough due diligence framework are essential and can materially affect the yield profile and tax model of a deal.

For more information about this complex area contact us

Case Study one - care home fit out

A care home's accountant had already reviewed the capital expenditure on the fit out of the care home and had claimed £60,000 in capital allowances. Lovell Consulting reviewed the leasehold improvements and using their specialist knowledge, identified a further £150,000 of allowances.

Lovell Consulting also reviewed the sale and purchase contract of the property and found that no capital allowances claims had been made by the vendor. Lovell Consulting were therefore able to increase the allowances by a further £200,000 by claiming allowances on the purchase of the property. Based on this success Lovell Consulting have now been asked to review the rest of this care provider's property portfolio.

 

Case Study two -  office purchase

 An overseas property investor acquired a small office for circa £4m in early 2009 and inherited a capital allowances s198 tax election at a low value.

Through a detailed due-diligence process Lovell Consulting managed to identify significant additional plant that had not been claimed by the prior vendor and also identified that prior allowances related solely to a refurbishment project.

 A further claim was then made on original plant assets within the property as well as the general lighting, general power and cold water systems which now qualify as Integral Features. The overall additional allowances identified were close to £0.5m.

 

Case Study three -  doctor's surgery construction

 A partnership had built an extension to their practice over fifteen years ago, but had never claimed any capital allowances. There were no cost breakdowns available and therefore the client had assumed they could not make an historical claim.

Lovell Consulting surveyed the property and identified all the qualifying plant and machinery. Quantity surveying techniques were then used to calculate the present day construction cost and then apply construction indices to estimate the cost at 1992 levels. This analysis enabled the partnership to make a capital allowances claim for circa £40,000.

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