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Capital Allowances for UK Landlords: An Underused Tax Relief

 |  27 October 2021

Commercial property owners throughout the UK are missing out on hundreds of thousands of pounds due to a largely misunderstood and significantly underutilised tax relief relating to embedded capital allowances. Despite the ability to claim Capital Allowances having been in play for many years, and the specific Capital Allowance Act 2001, it is still a niche area of tax accounting that most small to medium firms simply cannot provide as a service. 

Because of this, fewer than 20% of property owners throughout the UK have claimed the Capital Allowances they are entitled to. 

At the recent Pi Insurance Property Summit, HMA Tax, the UK’s largest Capital Allowance advisors, explained what embedded Capital Allowances are and how to determine whether you could be eligible for a refund or relief. You can watch the full session here.

Here are the key takeaways from that session given by leaders in their fields - Karmen Freimuth, Head of Partnerships and Miguel Ramskill, Senior Claims Specialist at HMA Tax.

What exactly are Embedded Capital Allowances? 

Embedded Capital Allowances are a specific type of corporation tax relief that is available on capital expenditure within commercial properties. 

These allowances apply to both established properties and new builds/developments, through the consideration of eligible items, including electric cabling, fire systems, lifts, flooring and power sockets - effectively everything within the brick and mortar that make up the property. 

Capital Allowances can be claimed at the time of the original build, as well as any alterations, extensions, or refurbishments completed post-purchase, this includes fit-outs and refurbishments of leased buildings. 

Irrespective of how old your building is, if a claim has not previously been made for these items, an amended tax return, submitted alongside a specialist’s report can unlock significant rebates and relief from HMRC. 

What are the requirements to claim? 

In order to claim on Capital Allowances, there are a few key requirements, detailed as follows: 

  • The property must be owned by an individual, partnership, or limited company. 

  • The property owner must be a UK taxpayer. 

  • The property is not to be held in a pension fund as a SSAS or SIPP shields it from tax. (If you are thinking about putting a property in a pension fund, or taking one out, consult with a Capital Allowances specialist, particularly if it is personally owned.) 

  • For the life of the property, a full review can only be done once. Specialist advisors can undertake an investigation into the property history to ensure claims haven’t been made previously, however any improvements since that last review can still be claimed. 

Average claims for commercial property 

On average across all types of commercial property, a Capital Allowance claim is typically worth 26.5% of the purchase price of the property. 

Hotels typically have the highest claims at around 35% of the purchase price. This is due to the cost of fit-outs, and inclusion of amenities such as ensuites and commercial kitchens.  

While the cost of industrial buildings can be highly variable, depending on the size and type, the average claim sits around 16% of the purchase price. 

Average claims by percentage of purchase price 

  • Hotels – 35%  
  • Care homes – 34% 
  • Surgeries – 34% 
  • Pubs & restaurants – 32% 
  • Offices – 24% 
  • Furnished holiday lets – 24% 
  • Factory & industrial – 16%

It is important to note that regardless of when the property was purchased, whether it was a year ago or ten years ago, the price that is paid at settlement plays an important role in determining the allowance available. Estimate how much you could claim by using this claim calculator.  

So what now? 

If you are unsure of whether you are eligible to claim any embedded capital allowances, or if you are in the process of purchasing a new property, it is recommended that you engage a specialist firm for guidance. It is highly likely that you may be sitting on unclaimed money. 

To learn more about the process of claiming embedded capital allowances, watch our full session with Karmen and Miguel here.  


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