Property Improvements & Capital Allowances

Property investors and occupiers undertaking refurbishments or fit-outs of commercial property could incur considerable capital expenditure, whether their aim is to address the changing demands of the business or simply maintain the general upkeep of a property. For qualifying capital expenditure, there is the option to claim capital allowances, which can deliver significant tax savings - but it is vital to consider this properly.

A capital allowances claim acts as a form of tax relief, and enables you to reduce your taxable profits based on your qualifying expenditure incurred in particular categories - plant and machinery, for example. As such, it lowers the amount of Income Tax or Corporation Tax you must pay in the relevant tax year.

In many cases, investors and occupiers refurbishing or refitting a property for business purposes can claim their costs as repairs and maintenance allowance, but it is important to know that this is not the only option. In fact, there are several approaches that businesses can use to maximise the tax relief they create through capital allowances. You should seek professional advice to properly identify qualifying assets and make the best use of capital allowances.

The expert team at Monetta has a wealth of knowledge and experience in helping individuals and businesses to reduce their tax liability. The opportunities for tax deductions afforded by capital allowances can be vital to the financial health of a business or investor, and we want to make sure you never pay more tax than you owe. Call your local Monetta office to learn more, or use our online enquiry form to send us a message.

How Monetta Can Help

Expenditure on refurbishment or a new fit-out can be costly and, while you may be able to categorise the work as repairs and maintenance to claim capital allowances, this may not be the correct position. Due consideration to capital allowances will be important to ensure that the tax aspects are correctly addressed, and this is where Monetta can support you. Our expert capital allowances advisors have supported businesses and individual investors across UK industries to help them claim for plant and machinery allowances, removal of contaminated land, and other types of allowances that apply in specific cases.

The fit-out or refurbishment of a commercial property differs from repairs and maintenance in the sense that they aim to prepare the property for business use. This applies to situations where the property structure is in place - however, in order to maximise the tax relief, it is necessary to fully understand the construction principles behind the works undertaken.

All of this can be complicated, and the consequences for non-compliance are potentially very serious. Thanks to our thorough approach and our knowledge of the relevant considerations, Monetta's capital allowances experts can make the process of claiming capital allowances faster and simpler for you, while ensuring that all of the legal requirements are satisfied.

Capital Allowances on Refurbishment and Fit-Out Projects

The fit out and refurbishment of existing property relates to alterations of an existing envelope. The structure, floor, ceilings and walls have all previously been installed and as such these works relate more to getting the property ready for business use. Even so, there are many considerations relating to the works you are undertaking, and the underlying construction of the property, that may need to be taken into account. Factors we will consider when evaluating a capital allowances claim include:

Repairs and maintenance expenditure

Properties which are deemed to be capable of use, or indeed are currently in use, may attract a high level of expenditure categorised as repair and maintenance, if the works can be considered a ‘like for like’ replacement or the ‘modern-day equivalent’. For example, timber-frame single-glazed windows can be replaced with double-glazed, uPVC-framed windows; which are deemed the modern-day equivalent. Accordingly, this upgrade can be treated as a fully deductible expense for tax purposes.

Initially, the expenditure may be ‘capitalised’ in the accounts, as it forms part of a larger refurbishment project. However, one may only be able to deduct it as an expense if it is included in the profit and loss account, so early consideration is required about the intended treatment and depreciation policy.

In order for the expenditure to qualify as a revenue deduction it needs to be either a like-for-like replacement of the existing asset or the modern-day equivalent. However, any item of expenditure that may qualify for capital allowances cannot be included as a revenue item if it has been substantially replaced.

Using the previous scenario (where a ceiling has been removed to help facilitate the installation of air conditioning), if the main reason behind the installation of a new ceiling was because the existing ceiling was beyond economical repair then the expenditure could potentially be treated as repairs and maintenance.

However, if the air conditioning was also being replaced, and was 'substantially' replaced, it cannot be treated as revenue and should be taken as qualifying capitalised expenditure (subject to capital allowances).

Earlier involvement can lead to greater levels of tax relief, so it is important to contact us as soon as possible. Capital allowances involvement from the start of a refurbishment or fit-out project allows us to document the information in greater detail. In turn, this will assist in ensuring that the allowances are maximised and the tax burden reduced.

Works incidental to the installation or removal of plant

Among the main considerations that are often either overlooked or not fully utilised are works that are incidental to the installation or the removal of plant. Take, for example, a case where a landlord has to install a new passenger lift in a building. For new construction, the installation of the lift shaft would not qualify for capital allowances. However, in an existing building these subsequent works are incidental to the installation of the lift and as such would qualify.

Similarly, a tenant may wish to install new air conditioning in their existing office. If it is deemed that the most efficient manner to undertake the works is to remove the existing ceiling, install the air conditioning and duct work and then replace it with a new ceiling, all these works are incidental to the installation of the air conditioning.

Removal of contaminated land  

Land remediation relief is another key consideration on such projects. This is particularly relevant when the works relate to stripping out installations made by previous tenants or occupiers where materials used have subsequently become known to cause harm or damage. Examples include asbestos and Japanese knotweed, the removal of which may constitute qualifying capital expenditure.

In fact, expenditure that qualifies for removal of contaminated land capital allowances does not only include the removal of contamination, but also expenses incurred on works to replace and make good. For example, if asbestos was used to insulate parts of the building, you could include for the replacement insulation and making-good works in your capital allowances claim. All of this could qualify for the enhanced tax relief.

Capital contributions

Whether a landlord or incoming tenant, you should be interested in how the capital contribution is treated, not least because it can lead to the possibility of a double claim. In addition, each party has the ability to negotiate where the capital contribution should be allocated in order to give themselves the best tax position.

Grant funding

It is great to receive funding on any project, and it might be possible to determine where the funding should be allocated to maximise savings. In one recent example, during the grant funding negotiation stages it was agreed that the whole grant was to be allocated to the provision of the land. This meant that none of the grant would be allocated to the plant and machinery allowances, which had to be factored into tax calculations.

Year-end claims

Given that full expenses can only be claimed in the year the expenditure was incurred, it is important to identify the capital allowances relevant to the year end for projects that span over a number of financial year-ends.

Seek Expert Support with a Capital Allowances Claim

It is vital to seek expert guidance at the earliest stage of a project. Involving Monetta from the start allows us to document the details of your refurbishment or fit-out project in depth, which will help us to maximise the value of your capital allowances claim.

The following example review took place recently where we were involved from the start of the project. By visiting the property prior to the works, we were able to document the works incidental to the removal of existing plant as well as the works incidental to the installation of new plant.

Allowances claimed	Total qualifying project expenditure
Capital allowances	£726,007
Revenue deductions	£536,389
Structures and building allowances	£318,206
Non-qualifying expenditure	£1,255
Total expenditure	£1,581,856

 

Our early involvement was one of the main reasons we were able to identify tax relief in the form of capital allowances and provide a revenue deduction of around 80% of the total expenditure. Works incidental to the removal of old plant and the installation of new plant amounted to around 15% of the value of the above capital allowances claim.

Why Choose Monetta?

Monetta combines the approach of a local business with a network of offices in the North West through which we can serve organisations and investors across the UK. Our experience covers all industries and our track record of success means that we have the right knowledge to draw on to maximise your tax savings. Beyond assessing refurbishments or fit-outs for capital allowances purposes, we can examine other allowances that will minimise your overall tax liability, and can advise on property transactions to help you enjoy the greatest tax benefits available.

Whether you are a commercial property owner, a property business with a portfolio of premises, or anyone else responsible for commercial buildings, we can help you to calculate and claim capital allowances on the relevant tax return. Get in touch today to discuss your needs with our expert team.

Contact Us

The information above only represents a guideline, and it is vital to work with expert advisers to claim capital allowances in the most tax-efficient manner. Call your local Monetta office or use our online enquiry form to get in touch and receive advice on minimising your tax liability. Alternatively, check our team page to learn more about our individual experts.