Socially conscious investing is becoming a prerequisite and not just a “nice to have” when considering a new purchase for a commercial property. Investors want to do their bit to bring about positive change where the environment is concerned, whilst balancing the books. As the cost of solar panels fall and energy prices rise there has been an increased uptake of “green“ systems.
According to the Building Research Establishment (BRE), there are approximately 250,000 hectares of south facing commercial (non-domestic) roof space in the UK on which to put solar panels. Added to residential and the ground that’s a lot of solar energy.
Solar or photo voltaic (PV) panels utilise a collection of cells to capture and convert sunlight into direct current (DC) electricity. This electricity can be used to power the building or sold on to the grid.
The other type of device that is often confused with PV’s is a solar thermal collector which heats up hot water. Water flows through coils in panels exposed to the sun and back into a storage cylinder. You will have seen these on the hotels in the Med and other hot countries.
Investors may be able to claim tax relief on their expenditure, so long as a few boxes are ticked. For example, ownership, who spent the money and are they a taxpayer.
The expenditure will typically include the cost of the labour and the panels, cabling, trenches, grid connection, professional fees and the site set up such as scaffolding and the management of the installation. This expenditure is treated as plant and may qualify for plant and machinery allowances (capital allowances). From April 2012 all expenditure on solar panels is designated as special rate expenditure, currently attracting an annual writing down allowance of 6% per annum.
A business savvy investor spent £100,000 on solar panels on a warehouse roof in October last year. The annual capital allowance that they are claiming on this expenditure is £6,000 in the first year, giving them a cash saving of approx £1,100. in the same year. They are checking to see if they have any of their Annual Investment allowance (AIA’s) left because this could push all the savings into one year and save £19,000.
It is unfortunate that we can’t claim capital allowances on most residential property, but we can benefit from greener energy and a reduction in the use of fossil fuels with solar panels.