New tax rules offer relief for investors in property
This week (April 6) sees the introduction of a host of new tax rules affecting property investors which will ultimately result in increased tax liabilities and lower returns on investment.
However, claiming tax relief by way of capital allowances on purchases of commercial property is one of the most commonly missed claims for tax relief and could be a relatively straightforward way for investors to limit the effects of the new rules.
Providing certain conditions are met, it is possible to claim tax relief against your business or rental profits for embedded fixtures such as electrical and heating systems, kitchens, toilets and carpets.
Making claims for fixtures can provide significant tax savings and, in many cases, cash repayments from HMRC. Over the past few years, many businesses and property investors have benefited from the significant tax savings available by making retrospective claims on commercial properties they own (in some cases, which have been owned for over 20 years).
As a firm, we have assisted many property owners in making claims for missed tax relief, generating in excess of £1m of tax savings in the past 12 months alone.
In 2014, the rules on claiming capital allowances changed and became a lot tighter. Now, with some exceptions, the capital allowances must be agreed between the buyer and seller at the point of sale, or they may be lost forever.
Although the expectation was that this would force both parties to the negotiating table and put capital allowances on the agenda at the time of the deal, our experience is that claims are still not being addressed by buyers and sellers or their advisers, leaving valuable tax allowances locked in properties.
Although there is a two-year period after the sale completes to deal with the capital allowances, in our experience it is extremely difficult to engage both parties to agree or facilitate a claim.
In a recent case, one of our clients was buying an office in the northeast from a property investor for £450,000. The seller’s solicitors advised that no capital allowances were available.
Having made further inquires with the seller, we identified that there were in fact capital allowances available. The buyer and seller shared the benefit of the tax relief, both saving over £25,000 off their tax bills. A great win-win result.
However, I expect as many as eight out of 10 commercial property sales complete every day without the capital allowances position being addressed properly.
The message is clear – if you are either buying or selling a commercial property, make sure you know what capital allowances have been claimed on it and where you stand before you sign on the dotted line.