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How might you receive Capital Allowances?

In our last article, we explored the levels of capital allowances available in different property sectors. We will now explain how they are received.

Taxpayers usually receive allowances on a reducing balance basis over time. The term used is writing-down allowances (WDAs).

The rate at which you receive WDAs depends on the types of plant and machinery in the property and is either 18% or 8% per annum.

Take, for example, the case of a taxpayer who has spent £250,000 on plant and machinery and who is claiming writing-down allowances. Let’s assume that £100,000 qualifies for allowances at 18% and the balance at 8%. Allowances could then be received by the taxpayer as follows: -

 

Period ending 31st March

£

2017

30,000

2018

25,800

2019

22,260

Total allowances

250,000

 

 

The allowances are received until the taxpayer obtains the full £250,000. It is much more advantageous however to receive some or all of the allowances in the first year. Taxpayers may be able to do this through annual investment allowances (AIAs) or first-year allowances (FYAs).

The annual investment allowance (AIA) allows companies and individuals to receive the first £200,000 (accurate as of 05/2017) of their allowances in the first year (though the £200,000 may have to be shared, for example between groups of companies). The taxpayer can claim WDAs as before on any excess over the £200,000.

First-year allowances are given for certain specified categories of expenditure, including so-called enhanced capital allowances (ECAs) for certain energy-saving or water-saving plant, and enterprise zone allowances (EZAs) for the cost of certain plant and machinery in designated areas.

Research & Development Allowances (RDAs) are a different type of capital allowance, subject to their own technical rules, but again offering immediate tax relief where the necessary conditions are met. 

If you are buying an old or a new property, building a property, altering, extending or refurbishing a property, or fitting out let property you may well be entitled to claim capital allowances. Stuart Rivers Associates may be able to help identify opportunities to maximise the speed at which allowances are received.

We hope that this short article introducing how capital allowances are received has been of interest and we will be happy to discuss any point with you in more detail.