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‘This quite wonderful thing called capital allowances’
In this episode Arthur Kemp, Specialist Capital Allowance Surveyor presents a detailed explanation of capital allowances, how they work for investors and the qualifying activities.
It is estimated that 96% of all property transactions haven’t maximised their capital allowances so if you are investing in Serviced Accommodation, Holiday Lets or other qualifying activities it's vital that you listen to this podcast it will change everything!
KEY TAKEAWAYS
- What are capital allowances?
When you invest in your properties, in your business you can claim capital allowances on the assets you buy. Typically, these things are called plant and machinery and it is all of the second fix items in property, all of the things that make it work and are not part of the structure.
If you are making profits, rather than paying tax on those profits you can use the allowances to reduce your taxable profits to not pay any tax. Capital allowances also have an intrinsic cash value which helps you to increase the return on your investment.
You can claim the value of this plant and machinery as a tax deduction before you pay any tax. Often people buy a property and claim the capital allowances resulting in a tax loss that can be rolled forward against future years profit.
Capital allowances can be used against any other taxable income you have. If you are still in employment then the capital allowances you get from your property investments because they are owned by you can be used to offset the income you get from your job. You could potentially get back all of the PAYE tax that you pay throughout the year. This is utilising sideways loss relief against other forms of income.
- When can you claim capital allowances?
When you buy a property, you buy all the plant and machinery ‘the second fix items’ as part of the purchase. It’s the valuation of those second fix items that you can claim as part of the purchase price.
If you already own property capital allowances can be claimed retrospectively. Under our current tax system, you can go back and make adjustments in previous years. This means if you are entitled to capital allowances you can make the adjustment and resubmit.
If you are developing a property for SA you may not spend a huge amount on the purchase of the building e.g. an office block but will spend more on developing the property into SA. You will be putting more plant and machinery into the property and this is what you can claim on.
- Which properties qualify?
If you buy a commercial property it qualifies., but you cannot claim capital allowances on dwelling houses. A mixed-use property qualifies but if the flat unit is someone’s private dwelling that part does not qualify. Holiday lets and serviced accommodation qualify for capital allowances.
You can only claim capital allowances once in a properties lifetime. If you buy a house and convert it into flats it will not have qualified as a dwelling but will qualify as flats.
- If you buy properties from groups that are exempt from tax such as local authorities and charities then you will be able to claim all of the capital allowances yourself.
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You can claim capital allowances on any property that you buy around the world but
you must declare tax in the UK to be able to make a claim.
- 150% of what you invest can be claimed against
Land remediation
The bulk of capital allowances are plant and machinery but there is also land remediation relief – the single biggest tax relief the government offer. It's designed to encourage people to clear up contaminated land or buildings.
Any money spent cleaning up problems such as Japanese knotweed and asbestos qualify for 150% tax deduction.
Enhanced capital allowances
These are in place to incentivise people to help reduce the worlds carbon footprint.
Investing in energy efficient plant and machinery will qualify for enhanced capital allowances in large scale projects.
- If you’re purchasing a residential property do you have to put in planning before claiming capital allowances?
It’s irrelevant from a capital allowances point of view. It’s the way it’s been traded in a qualified activity.
- How can we make the most of tax relief on SA?
The property company will invoice the operating company a cost for rental, if this is equal to the profits of the operating company then the profits are effectively shifted into the holding company where you can utilise capital allowances to offset the profits.
- What are the rules if you change back from a SA to residential?
This would cause a disposal event and you will not be able to claim any further capital allowances.
- If I am developing holiday lets and residential on the same title do I need to segregate them to be able to make a claim?
The title status has no bearing on capital allowances it's about whether it is a qualifying activity if it is the owner can claim capital allowances.
- What is the situation if part of a property is SA and the rest is Buy to Let residential activity, but some plant and machinery are shared?
If this is the case the use of shared plant and machinery it is calculated on apportion by square feet and then a claim can be made against the qualifying activity.
- What’s the situation with a leasehold property?
As long as you have paid a leasehold premium its treated for the purposes of capital allowances in the same way as a freehold property.
BEST MOMENTS
‘It helps you to keep hold of more of your hard-earned money’
‘You will be able to look at a deal that may be unattractive to others and know that because factoring in capital allowances value it is a positive opportunity’
‘It will help you to look at deals in a new way’
‘Capital allowances has been around for 141 years in one form or another’
‘That’s perfectly legitimate and called sideways loss relief’
‘When you’re planning your property consider which is the best pathway for you’
‘Knowing about capital allowances is important even if you can’t benefit from it directly’
‘As a rule of thumb, 20% of the purchase price will be the capital allowances you can get’
‘Factoring in the capital allowances into a property can make a huge difference’
‘150% of what you invest, that must be some capital allowances magic!’
VALUABLE RESOURCES
https://itunes.apple.com/gb/podcast/the-serviced-accommodation-property-podcast/id1436005279?mt=2
ABOUT THE HOST
Your host Kevin Poneskis enjoys public speaking, travelling, exercising and keeping fit. He also enjoys working with a charity called STOLL which provides accommodation and training for homeless veterans.
Kevin was in the British Army serving 24 years, mostly in a Commando unit and retired at the rank of Regimental Sergeant Major. He left the Army in 2011 and became a full-time property investor. During most of his Army career, Kevin was investing in property and has been a property investor now for over 27 years.
CONTACT METHOD
https://en-gb.facebook.com/propertysoldier/
[email protected]
ABOUT THE GUEST
Arthur Kemp is a Capital Allowances specialist who, for the last 10 years, has been servicing commercial property owners in this niche area of tax saving. Working with Mark Homer in this time on the larger development projects, saving tax by maximising opportunities for
Plant & Machinery, Land Remediation Relief and Enhanced Capital Allowances.
CONTACT METHOD
www.exactbusiness.co.uk
www.exactblog.co.uk
01954 253574
0845 467 2765
