What Qualifying Expenditure on Your Property Can Maximise Your Tax Relief Claim?

Most commercial properties will include the fundamental qualifying fixtures to adequately operate as a functioning building (i.e., basic electrics, lighting, heating, sanitary, a kitchen, and associated plumbing).

However, there are specific categories of commercial property that will likely include substantially higher levels of qualifying plant, as detailed below:

Offices

A stand-alone business park multi-story office building will incorporate additional fixtures including lifts, air-conditioning, ventilation, building management systems, carpeting, fire alarms, intruder alarms, access control systems, CCTV, and IT/data points.

Hotels

High-end hotels will benefit from substantial amounts of sanitary and associated plumbing due to the number of ensuite bedrooms. Other fixtures include fitted bars and seating, reception desks, commercial kitchens, keycard access systems, lifts, air-conditioning, ventilation, building management systems, carpeting, fire alarms, and CCTV.

Nursing/Care Homes

Similarly, a care home will likely have large quantities of ensuite bedrooms together with the associated fixed plant. They will also include sluices, a nurse call system, nurse stations, specialist baths, hoists, passenger & stairlifts, corridor handrails, and door entry systems.

Medical Centres

As each consultancy room and treatment room will likely contain a wash basin, a medical centre will also benefit from additional water and disposal installations. We would also expect to find large quantities of fitted cabinetry, fitted seating, and a fitted reception desk together with air-conditioning, ventilation, fire alarms, intruder alarms, and CCTV.

Distribution Centres

A large warehouse with ancillary office space will contain a similar plant to that detailed in the above office description; however, the warehouse section will likely also include radiant heating, a sprinkler system, roof smoke ventilation and dock levellers.

At the other end of the scale, there are property types that, although not to be avoided per se, tend only to yield minimal levels of qualifying plant, even to the point where the exercise itself may not be cost-effective.

The main culprits are high street retail units with upper floor apartments. They will be subjected to multiple tenant fit-out works on the lower levels with the remaining percentage of the property being in non-commercial use.

Other examples include HMOs, as only the communal areas can be deemed commercial in use and relatively small light-industrial units.

Property History

Another factor to think about when considering a claim for Capital Allowances is the ownership history, especially in this new post-2014 Pooling Requirement era, and the associated restrictions it brings with it.

Therefore, it is a massive bonus if the vendor could not claim Capital Allowances for one reason or another. These reasons include the vendor being a non-taxpaying entity (for example, a charity, a local council, or a pension fund) or not maintaining a qualifying activity (for example, a developer).

If it can be established that the vendor falls into one of these categories, amongst other things, there is a greater chance that a successful claim will be forthcoming.

It is also worth noting that build projects have no past owners, thus entirely avoiding the need for any historical due diligence.

Property Ownership

A final minor area to consider is the entity that owns the commercial property and how the benefit of Capital Allowances can vary.

A company pays Corporation Tax at a fixed 19% regardless of profits; however, individuals or partnerships paying Income Tax can benefit at a rate of 20%, 40%, or even 45%. When you factor in the fact that a trading business (as opposed to a rental business) also attracts Class 4 NIC at 9% or 2% the benefits of identifying unclaimed Capital Allowances increase even further.

One negative consideration for an income-tax paying owner with a connected party tenant is the possibility that no, or a below-market-rate, rent is charged, therefore potentially rendering any claim invalid due to a lack of qualifying activity.

Summary

The benefits of claiming Capital Allowances against the fixed assets contained within a commercial property are not a universal constant. They can vary significantly depending on the type of property, the vendor’s tax position, and the owning entity’s tax rate.

If you have a portfolio of commercial property-owning clients and are unsure where to start, have you considered the above?