Guide to Capital Allowances on Property
Updated 23 October 2010
WHAT?
What are capital allowances?
Capital allowances are allowances provided to tax payers for buying new equipment. Equipment includes a whole range of items and in particular since December 2008, a legal change has resulted in this including electrical, plumbing and installations made in your property which includes the items which you have on your property purchase itself (even if made some time ago). More recently this also changed in October 2010 to be more restrictive. For those who understand depreciation as they do their own tax returns, it is very similar to this and will either reduce your tax bill in one year or over many years. Where returns have been prepared, it will then allow you to back track to those returns and claim significant rebates.
The property must have had or will have more than one family unity in it to qualify – so this can be students, unmarried individuals without children or the more traditional room lets as well as the more well known trading properties like bed and breakfasts.
Keeping detailed financial and a property plan enables relatively easy completion of the survey which must be completed by a qualified individual.
WHO?
Who can claim capital allowances on property?
Anyone who has more than one family unit occupying their property. The actual rebate will be calculated based on a value of items which are deemed to be equipment based on floor areas and what is in the property which is heating, safety and needed on top of the pure fabric of the building.
The individuals or companies can claim this will include:
- Employees who pay their tax through the PAYE system and have no other source of income other than property.
- Those that do receive and must complete a tax return include:
- Sole traders and partnerships
- Company directors who receive benefits or remuneration
- Employees with complex tax affairs
- High rate taxpayers with savings or investment income
Capital allowances can therefore be claimed back against any income not just rental income. They cannot however be claimed against Capital Gains Tax (CGT).
WHY?
Why have we not been told this before?
Hardly a priority since the HMRC fail to get most tax codes and returns correct themselves to advise you on how the recent changes affect you? Well actually it is also news and many accountants who do not specialize in property affairs like Cranleys are not aware of the issues. It is also due to a statute change in December 2008 and will affect only returns from that year 2008/09.
HOW?
How is Capital Gains affected by this?
Simple. It is not. So that means selling your property will not lead to more changes down the line.
How can I claim?
Revising your 2008/09 tax return, appointing a property accountant as experiences in this matter as well as providing your tax returns for the period 2008/09 onwards.
How much can I claim?
We typically will find claims will be around 7% of the property value when it was first purchased provided this meets the critieria of being a central space which does not form part of the areas required for the dwelling and there is sufficient bathroom and living facilities which are excluding from the property.
After a release of a legal change by HMRC on 22 October 2010, this will now be limited to the areas where lifts, central stairs, outer doors and signage. See the definitions changes listed.
How much will it cost?
Like all Cranleys work, if paying in advance we are very competitively positioned, it is £997 +VAT for each property survey. If completing your returns as well this may add £179 per return when completing more than one return at a time.
How long does it take?
Typically we can start and complete the survey, complete the returns within 10 working days providing all information is provided to us.
WHAT?
What values will need to be assessed?
If filed before 22 October 2010
Luck! All communial areas within the property including TV rooms, kitchens and bathrooms
where they are shared. Also corridors, stairs, landings, lifts and doors.
Filing returns after 22 October 2010
Not so lucky. You will need to ensure all individual rooms have kitchenettes and ensuites to
ensure central bathrooms and living areas are included in the allowance claim. Failing that your
claim will be limited to areas which are not necessary for the enjoyment of the dwelling which
include central stairs, halls, landings, doors, lifts. Unfortunately where there is no alternative to
eat or prepare food, central kitchen areas and living rooms will now be included. Essentially the
legal opening resulting from the change in December 2008 closed on 22 October 2010.
What cash could I receive?
Well if you are a higher rate tax payer, a property for £150,000 purchase in 2009/10 tax year where £10,000 is the allowance claimed on the investment, will result in £4,000 of cash back on filing it for a higher rate tax payer.
What information do you need?
To complete the survey:
a. Property address
b. Purchase date
c. Purchase price
d. Completion statement / contract
e. Overall internal floor areas and communal floor areas
f. Cost and specification details of the capital works since purchase
g. Floor plans for each property, if available; and
h. Valuations reports for each property, if available and not recent purchase
i. Confirmation there has been no previous claim for capital allowances on the property.
To complete and update your tax returns:
a. Previous returns filed
b. HMRC correspondence
c. Current accountants details if taking over that work
d. Email from you and copy to us if we are acting purely for this amendment work
DO?
Do I need to change my accountant?
Well if you consider many accountants will not do these claims, you are welcome to work with us on the property affairs or just the surveys. Of course we hope you will come and join us for good!
Based in North Hampshire, with London on our door step, we serve clients UK wide and it is not vital to see us.
Make contact with us
Call us today to make a new start in your property portfolio:
– Colin Davison, Property Partner 01256 830000
About Cranleys (Chartered Accountancy practice with passion for property) Cranleys was formed in 1998 originally with Colin Davison and Alan Davison. Over the years the specialisation of property continued with Colin acting as advisor to everyone wanting help completing their first property purchase right to those well known and experienced property coaches. Whilst the passion remains in the practice, tax planning and wealth coaching with individuals, he continues to edit Property Tax Secrets book since 2003 and holds properties well over £4 million value.
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