Tax benefits missed

Tax benefits worth hundreds of millions of pounds are languishing in government coffers due to the ignorance of businesses, according to property consultancy FPD Savills.

Capital allowances are the only form of tax relief on the purchase, development, fitting-out and refurbishment of commercial property for investment or occupational purposes. Failure to claim the allowances means any possible tax benefits are lost.

‘Businesses are losing hundreds of millions of pounds in tax benefits available upon capital expenditure that they incur on their properties,’ said Savills’ capital allowances specialist Neil Farquhar. ‘This is because they are not aware of the benefits they are entitled to, and where they do, they often fail to maximise the value of the allowances available.’

To work out the basis of a claim, expenditure must be incurred by the taxpayer who owns the qualifying asset which must also be used for trade.

Farquhar said maximising the valuation of capital allowances is a relatively straightforward method to reduce the post-tax cost of expenditure on all commercial assets. It should be addressed by property investors and developers whenever they are buying, selling or developing commercial property, as well as occupiers incurring expenditure on their property.

Farquhar added there was huge potential for generating substantial tax savings. But successful claims to the Inland Revenue for capital allowance tax benefits required extensive knowledge of legislation and case law, which was constantly changing, making it hard for business to claim, he said.

The savings could increase the yield of property investment, improve the saleability of a development as well as turning a potentially viable project into a more profitable one, or reducing the property costs of occupiers in all areas of business.

The rates of allowances vary depending on the type of asset purchased.

Industrial building allowances are available over a 25-year period at a flat rate of 4% per annum. For machinery and plant, tax relief is given at the accelerated rate of 25% per annum on a reducing balance basis.

The overall claim can be offset at these rates against the taxable profits of the business.

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