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Capital Allowances in different property sectors

In our last article we explored the meaning of plant and machinery in the context of capital allowances. In this article we will explore the level of capital allowances in different property sectors.

Capital allowances are given for various types of capital expenditure but the most commonly available allowances are for plant and machinery. Capital allowances are of course a legitimate form of tax relief relevant to most businesses and commercial property investors.

Plant and machinery will obviously vary from one property sector to another. A care home and an industrial unit, for example, are completely different properties. In our last article we saw that capital allowances were relatively high in the hotel sector and we gave examples of the wide range of assets and expenditure which qualified for plant and machinery allowances in a hotel. By contrast capital allowances may be relatively low in the retail sector. This is because a landlord or a developer will very often provide a shell retail unit ready for a tenant or an occupier to fit out to their own requirements. A shell retail unit is very basic, often with bare walls and a bare floor, no ceiling, no lighting, no shop front and basic facilities. Please bear in mind that a tenant or an occupier might be able to claim capital allowances for their fit out and where a landlord has made a capital contribution to their fit out they might also be able to claim tax relief.   

It is also worth remembering that allowances can nowadays be claimed for some core parts of all commercial properties, including everyday electrics, general lighting and ordinary cold water systems.

The table below shows average claims for capital allowances for different property sectors as a percentage of expenditure. It is based on years of experience but should only be treated as a guide, hopefully a reliable guide. Our experience is not limited to these property sectors. If you have, for example, bought a former naval base or military airfield, a former police station, a brewery or something even more out of the ordinary we may well have seen something similar and would be very pleased to hear from you.  

The office, healthcare and hospitality sectors can be rich in capital allowances. If you buy a care home for £5M at 40% of expenditure you might generate capital allowances of £2M. If you are a company paying tax at 19% your overall tax bill would be reduced by £380K. In the sectors with relatively high capital allowances it stands to reason that they will often form part of negotiations when buying or selling. We would suggest that capital allowances should almost always form part of negotiations in all property sectors and be included in heads of terms at the outset.

We very much hope that this short article introducing the level of capital allowances in different property sectors has been of interest and we would be very happy to discuss any point with you in more detail.