What are Capital Allowances?
Capital allowances can be claimed by all UK tax payers who incur capital expenditure on certain property related assets that they keep for use within their business.
These assets are frequently referred to as either FF&E, fixtures, plant and machinery, integral features or ECAs.
They provide tax relief by reducing the amount or income tax or corporation tax paid by individuals or companies.
The amount of relief received depends on the type of assets purchased and the types of capital allowances available.
Currently the following allowances are available:
|Revenue Expenditure (Repairs) – 100% relief for repairs and maintenance of existing building, which are expensed against the profits of the business|
|Annual Investment Allowance (AIA) – Government set annual allowance which allows 100% deduction for the cost of the business-related capital assets up to an annual limit|
|Plant and Machinery Allowances (PMAs) – For expenditure in excess of the AIA, a writing down allowance of 18% per annum will be available|
|Integral Features (IFs) – For expenditure in excess of the AIA, a writing down allowance of 8% per annum will be available|
|Enhanced Capital Allowances (ECAs) – 100% initial allowance when purchasing specific green equipment as listed on a government managed list (ETL).|
Assets which commonly qualify for 18% allowances
- Fire Alarms
- Demountable partitions
- Sanitary fittings
- Furniture and fittings
- Catering equipment
- Dock levellers
- Manufacturing equipment
- Swimming pools
Integral Features (IFs) which qualify for 6% allowances include the following installations:
- Electrical systems
- Hot and cold water systems
- Heating, ventilation and air conditioning systems (HVAC)
- External solar shading
- Solar panels
Enhanced Capital Allowances (ECAs) are available on green equipment as long at the assets are listed on a government approved list known as the Energy Technology List (ETL). The precise make and model must be purchased and may include:
- Zone controls
- Efficient boilers and chillers
- Ground source heat pumps
- Efficient pumps, motors and drives
- Pipework insulation
- Water flow controllers
- Rain water harvesting
- Efficient lighting (non-listed)
Note, this scheme comes to and end April 2020.
A new category of Capital Allowances called Structures and Buildings allowances (SBA) has been created. Key aspects of this tax relief on the “bricks and mortar and concrete” are as follows:
- Contracts entered into after 29th October 2018
- Relief given at 2% straight line basis over 50 years
- Lands costs and planning fees are excluded
- Expenditure on residential (dwellings) is excluded
- SBA’s cannot be set against the AIA
- An allowance statement will be required by HMRC if a valid claim is to be made
- When a property is sold, unused SBA’s will pass to the new owner and the seller will keep what they have claimed so far
Capital allowances property tax relief is available on virtually all types of property. So long as you own the property, you have incurred the expenditure, you are using it for your business and of course you must pay tax to get tax relief.
Read our Capital Allowance Frequently Asked Questions (FAQs) for more information.