Super Capital Allowances, how will they affect me?

In 2021, the Chancellor announced a number of capital allowance incentives in his budget that whilst being temporary are still in place and will remain until at least 31 March 2023. The headlines for these allowances are:

❖ a 130% super-deduction capital allowance on qualifying plant and machinery investments

❖ a 50% first-year allowance for qualifying special rate assets

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world's most competitive.

Source: https://www.gov.uk/guidance/super-deduction

There are some specific areas of guidance for property businesses including:  

Communal areas in multi tenanted buildings;

These will be allowable for the super capital allowances subject to the lease and control conditions.

This is important because in a multi-let property the central plant, lifts, etc represent a considerable cost of the total.  Typically up to 20% of a development could qualify for the 130% or 50%.

Operators (hotel, aparthotels, care home, serviced office, retail, restaurant, leisure);

The response that the majority of the operators will qualify, however there was some degree of uncertainty for Hotels, apart hotels and serviced offices.  We're of the opinion that these would qualify as they are trades, but we are seeking confirmation.

Tenants and their fit outs;

Tenants who pay for their own fit outs would not be subject to the leasing restriction (assuming they do not sub-let).

Owner occupied properties;

If the owner occupies the property and does not let out any part of it, the leasing restriction would not apply.

Some examples identified by Veritas Advisory are;

❖ The super-deduction relates to certain business assets which are required for the purpose of the trade, such as, IT installations, security, firefighting systems, furniture and trade related fittings

❖ The special rate allowance relates to those business assets which are defined as integral to a building, such as thermal insulation, heating, cooling, ventilation, electrical and water systems

❖ Expenditure must be incurred from 1 April 2021 up to the end of March 2023, but excludes expenditure relating to those contracts entered into before 3 March 2021

❖ Claimable by corporate tax (CT) payers only, including owner occupiers and operational businesses

❖ Assets purchased unused and not second hand can qualify, so applies to properties acquired from a developer

❖ Leased plant and machinery were a notable exclusion, so landlord assets for single leased properties are likely to be excluded, but those assets deemed within landlord controlled areas required for the operation of a multi-tenanted property, such as offices, student accommodation and BTR would qualify, subject to the Finance Act

 
 
 Benefit to you;

❖ Claiming the super-deduction means that 25% to 33% of the asset cost is funded by the tax relief gained

❖ With CT rates increasing from 19% to 25%, utilising this temporary relief can greatly reduce your tax

❖ Example of year 1 benefit for a company spending £10m on qualifying main plant and machinery assets:

Previous (Before 1 April 2021)
Deducts: £1m using the Annual Investment Allowance*, leaving £9m

Deducts: £1.62m using standard annual Writing Down Allowance at 18%

Tax Saving: £2.62m @ CT rate of 19%

Saves £497,800

With Super Deduction (After 1 April 2021) 

Deducts: £10m x super-deduction of 130% = £13m 
Tax Saving: £13m @ CT rate of 19%
Saves £2.47m

Source: https://www.veritasadvisory.co.uk/

Most of our clients are aware of capital allowances, and we work with them to identify what they can claim on and what tax planning measures they should take.

To find out more about the allowances and how they might affect you, please contact Charterhouse Accountants to arrange your free consultation and let them know you are friends of Choice Business Loans.