Don’t miss out on cap­i­tal prop­erty al­lowances

Belfast Telegraph - Business Telegraph - - News - By lisa knipe, As­so­ciate Di­rec­tor, Tax, Grant­thorn­ton @grant­thorn­tonni For fur­ther in­for­ma­tion or ad­vice, Lisa Knipe can be con­tacted at lisa.knipe@ie.gt.com Grant Thorn­ton (NI) LLP spe­cialises in au­dit, tax and ad­vi­sory ser­vices

Com­mer­cial prop­erty ac­tiv­ity in Belfast re­mains strong. There has been a surge of de­vel­op­ment projects in­clud­ing ho­tels, stu­dent ac­com­mo­da­tion and a num­ber of re­fur­bish­ments to older build­ings.

Within the last few months, one of North­ern Ire­land’s largest sin­gle com­mer­cial prop­erty trans­ac­tions was com­pleted with the re­cent ac­qui­si­tion of a ma­jor Belfast shop­ping cen­tre.

With a clear in­crease in com­mer­cial prop­erty trans­ac­tions, it is im­por­tant to recog­nise the tax re­liefs that can be availed of.

One of the most com­mon tax re­liefs of­ten over­looked in re­spect of com­mer­cial prop­er­ties is the avail­abil­ity of cap­i­tal al­lowances on fix­tures.

Of­ten, pur­chasers or de­vel­op­ers are un­aware that the fix­tures which al­low the build­ing to func­tion can be sep­a­rated from the cost of the build­ing and cap­i­tal al­lowances may be claimed in re­spect of th­ese.

For cap­i­tal al­lowance pur­poses, ‘fix­tures’ are plant and ma­chin­ery within build­ings which ex­tend to large me­chan­i­cal and en­gi­neer­ing items such as heat­ing and wa­ter sys­tems, air con­di­tion­ing, lifts and es­ca­la­tors to smaller items such as fire alarm sys­tems and CCTV.

Although cap­i­tal as­sets may be de­pre­ci­ated for ac­count­ing pur­poses, this de­pre­ci­a­tion is not an al­low­able de­duc­tion in the tax cal­cu­la­tion; cap­i­tal al­lowances are claimed in­stead of de­pre­ci­a­tion on cap­i­tal as­sets.

On el­i­gi­ble as­sets you can deduct a per­cent­age of the cap­i­tal ex­pen­di­ture from your prof­its each year, and over time the cap­i­tal al­lowances should ef­fec­tively pro­vide 100% re­lief of qual­i­fy­ing cap­i­tal ex­pen­di­ture by a pur­chaser or a de­vel­oper.

Each com­mer­cial prop­erty will be dif­fer­ent with re­gards to the type of cap­i­tal ex­pen­di­ture it in­curs, so it is worth­while tak­ing time to iden­tify any po­ten­tial claims.

The un­der­ly­ing prin­ci­ples of the claim re­quire each piece of ex­pen­di­ture to be cat­e­gorised into var­i­ous cap­i­tal al­lowance pools, based on tax leg­is­la­tion and case law.

Th­ese pools are sub­ject to dif­fer­ent rates of cap­i­tal al­lowances and should be con­sid­ered care­fully. In some in­stances, 100% re­lief may even be given in the year of pur­chase. With re­gard to the pur­chase of sec­ond hand com­mer­cial prop­er­ties, cap­i­tal al­lowances can be a com­plex area.

There are elec­tions and pool­ing re­quire­ments which should be con­sid­ered at the time of pur­chas­ing the com­mer­cial prop­erty.

Both par­ties should for­mally agree the value of fix­tures within two years of com­ple­tion and pre­sale tax plan­ning may be re­quired to en­sure the max­i­mum cap­i­tal al­lowance claim will be avail­able to the new owner. Tim­ing is of ut­most im­por­tance.

Cap­i­tal al­lowance claims can clearly cre­ate sub­stan­tial tax sav­ings, so if you are con­sid­er­ing a com­mer­cial prop­erty ac­qui­si­tion or de­vel­op­ment, it is ex­tremely im­por­tant to seek ap­pro­pri­ate tax ad­vice on the al­lowances avail­able. Oth­er­wise large tax re­liefs may be lost for­ever.

Com­mer­cial ac­tiv­ity is strong in Belfast with Castle­court sold re­cently

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