Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On...
Transcript of Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On...
![Page 1: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/1.jpg)
Capital Allowances Made Simple
8 March 2017
![Page 2: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/2.jpg)
• What are capital allowances
• Who can claim and the benefit
• How to claim on different transactions
• Which properties qualify and which items
• Types of Capital Allowances
• Buying and selling
• Case studies
Contents
![Page 3: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/3.jpg)
What are they?
• Government incentive for investment
• Legislation and case law
• Interpreted and applied by tax payers
• HMRC check claims
![Page 4: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/4.jpg)
Current Position
• Favoured by Government, increase rates
• Complicated by trying to reduce abuse via legislation
• Increases the benefit
• HMRC lack of resources
![Page 5: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/5.jpg)
Why are CAs important?
• Deduction against corporation or income tax
• Available where incur expenditure on commercial property
• Cash flow benefit
• Higher Equity / Lower L to V
• Only form of tax relief against property capital expenditure
![Page 6: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/6.jpg)
How it WorksTax Return Without Capital
AllowancesWith CapitalAllowances
Rental income/Profit £1,000,000 £1,000,000Deduct allowable costs i.e. debt finance
(£500,000) (£500,000)
Capital Allowances 0 (£500,000)Profit subject to tax £500,000 0Tax to pay (@20%) £100,000 0
![Page 7: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/7.jpg)
CAs in Tax Transparent Vehicles
• REITS / PAIFS• Don’t pay tax but legally must claim Capital Allowances• Used to reduce PID (amount must distribute to shareholders)
• Authorised Contractual Scheme (ACS)• Combine Funds / Encourage Onshore Investment• Offer SDLT & CGT exemptions• Complexities on calculating CAs on disposal of units and properties
![Page 8: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/8.jpg)
Who can claim?YES
Institutions Property Co'sOverseas Investors Private IndividualsOthers
£36bn
NO
Pensions
£9bn
![Page 9: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/9.jpg)
Who can claim? Common Misunderstandings
Traders, ie Retailers v Trading Stock
Capital Expenditure v P & L Expenditure
Overseas Companies v Overseas Properties
![Page 10: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/10.jpg)
What Triggers Entitlement to Claim
Incur Capital Expenditure
Own Relevant Interest
Held as Investment
Capital Contribution
Make a Claim
Freehold vs Leasehold
Not Held as Trading
![Page 11: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/11.jpg)
Capital Contribution Claims
• Know the legal position
• Who pays for what
• Structure agreement
Case StudyDrafted contract clause stated tenant (recipient) will get benefit. Invalid
![Page 12: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/12.jpg)
Service Charges & Dilapidation Payments
• Claim if met by the service charge?
• Is the service charge taxed as income?
• Claim on receipt of a dilapidations payment?
Asset Management Budget
Landlord Tenant
![Page 13: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/13.jpg)
Qualifying Property Types
Common Misconception / ErrorCan’t claim at all on ‘residential’ property
![Page 14: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/14.jpg)
Typical Qualifying AmountsType Developments Acquisitions• Shopping Centre 30% - 60% 2% - 35%• Care Home 35% - 60% 6% - 35%• Office 35% - 50% 5% - 32%• Hotel 40% - 65% 2% - 35%• Car Dealership 25% - 40% 2% - 20%• Health Centre 30% - 45% 3% - 25%• Student Accommodation 7% - 15% 2% - 6%• Industrial Warehouse / Retail Parks 5% - 40% 1% - 30%• General Fit-outs / Refurbishments 55% - 95% n/a
![Page 15: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/15.jpg)
Main Types of Allowances1. On reducing balance basis
18% Plant & Machinery8% Integral features & Thermal Insulation
2. In year of Expenditure (First Year Allowance)100% Annual Investment Allowance (£200,000)
Enhanced Capital Allowances150% Land Remediation Relief
![Page 16: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/16.jpg)
Examples of Plant & Machinery
18% writing down allowance pa
![Page 17: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/17.jpg)
Examples of Integral Features
8% writing down allowance pa
![Page 18: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/18.jpg)
Examples of Green Tax Incentives
100% or 8% writing down allowance pa
![Page 19: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/19.jpg)
Land Remediation Relief 150%
• Developers & investors• Land in the UK• Contaminated at acquisition• No subsidy or contribution• Polluter cannot claim• Relevant interest in the land• Tax credit
![Page 20: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/20.jpg)
Claim Prep/ Rebuild & Land Value
How to Make a Claim
Client ReviewPortfolio Report
Advice on Disposal Agree Claim with
HMRC
Collate DocumentsEntitlement to
ClaimSurveyIncur
Expenditure
![Page 21: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/21.jpg)
Maximise Claims
• Incorporate incidental expenditure• Claim all associated professional fees• Not just M&E expenditure• Claim at the highest writing down allowances• Capital vs Revenue• Timing of the claim – “when expenditure is incurred”
![Page 22: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/22.jpg)
Case Study – First Tier Tribunal
Expenditure: £30m
Claim Value: £6m
Client: Overseas Fund
Cash Saving: £1.2m (4%)
![Page 23: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/23.jpg)
Case Study – Retail Refurbishment
Expenditure: RetailRefurbishment
Project Value: £13m
Client: UK REIT Plc
Cash Saving: £7m (£6.3m)
![Page 24: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/24.jpg)
Buying and Selling
• What do I need to do and when?
• Who should be aware of CAs and who should address the CAs?
• What are the angles?
• The seller says there are no allowances to pass across? What next?
![Page 25: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/25.jpg)
Key CA Terminology in Simple Terms
• S198 election £2 v £TWDV
• Fixed Value Requirement Agree CA position
• Pooling requirement Insert figures in accounts
![Page 26: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/26.jpg)
Acquisitions – Legal entitlement?
• Vendor – tax payer / pension / LA / offshore?
• Freehold / Leasehold Acquired?
• CPSEs
• Prior Owners Claim History
• Contract Wording – HOT stage?
![Page 27: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/27.jpg)
Missed Claim Opportunities
Capital ContributionsTiming of ExpenditureCapital Contributions
Market Value v Actual Value
Non Tax Paying Tenants
Properties with Vacant Space
£2 s198 election
Unclaimed Historic Expenditure
Not ApplicableNo CAs Available
![Page 28: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/28.jpg)
Case Study – Hotel AcquisitionExpenditure: Hotel
Value: £6.7m
Client: Private Investor
Cash Saving: £360,000 (5.4%)
![Page 29: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/29.jpg)
Case Study – Industrial AcquisitionExpenditure: Industrial
Value: £2.3m
Client: Private Equity Investor
Cash Saving: £144k (6%)With £2 s198
![Page 30: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/30.jpg)
Case Study – Shopping Centre AcquisitionExpenditure: Shopping Centre
Value: £23m
Client: Overseas Investor
Cash Saving: £850k (3.7%)Receivership Deal
![Page 31: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/31.jpg)
Case Study – Office AcquisitionExpenditure: Office
Value: £5,000,000
Client: Overseas Investor
Cash Saving: £310,000 (6%)
![Page 32: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/32.jpg)
Company Acquisitions
• Review for unclaimed historic expenditure
• Capital Contributions
• Capex reconciliations
Common Misconception / ErrorTime restriction to review historic expenditure
![Page 33: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/33.jpg)
Surely all clients claim CAs….Don’t understand benefit
Think it is too late / No record of costs
Loss making or low tax rate
‘Too much effort’
Perception need to own property
Client assumes accountant or someone addressing it
Capital Allowances
Accountant
QS
Lawyer
Client
![Page 34: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/34.jpg)
Capital Allowances – 2017 / 2018?
• Authorised Contractual Scheme
• Energy Efficiency Requirements / Lease Breaks
• UK Corporate Tax Reform
![Page 35: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/35.jpg)
2017 / 2018 – Authorised Contractual Scheme
• Tax Transparent Fund Structure; Multiple Funds under one umbrella
• Taxed at investor level; CGT doesn’t apply to fund or non UK investors
• Value of UK ACS funds likely to exceed £250 billion by 2017*
• Operators of ACS able to elect to calculate
• Complexities calculating CA values* According to survey of Financial professionals undertaken by Northern Trust
![Page 36: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/36.jpg)
2017 / 2018 – Energy Efficiency / Lease Breaks
• Energy efficiency regulations passed 26 Mar 2015
• Properties below ‘E’ energy rating by April 2018 unmarketable
• Acquiring non-compliant occupied properties – 6 months to comply
• Penalties range from £5,000 to £150,000
• Significant Capital Allowances potential
![Page 37: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/37.jpg)
2017 / 2018 – UK Corporate Tax Reform
• Restriction of Carried Forward Losses to set against taxable profits
• Restriction to deduct interest expense and other financing costs
• Non-Resident Companies to be within scope of Corporation Tax?
![Page 38: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/38.jpg)
Concluding Note• Agent Family Trusts, Private Investors, Occupiers often not advised
• QS / PM If no one asks for Cost Information no one is claiming!
• Lawyer Ensure contracts cover CAs adequately
• Accountant Valuing Land / Buildings / CAs; Ancillary costs
• Investor Never assume no allowances available without checking
• Occupier Check claims have been made on all expenditure
![Page 39: Capital Allowances Made Simple 8 March 2017 · 2017. 3. 8. · Main Types of Allowances 1. On reducing balance basis 18% Plant & Machinery 8% Integral features & Thermal Insulation](https://reader036.fdocuments.in/reader036/viewer/2022081616/5fe7a2affe86b814c8702144/html5/thumbnails/39.jpg)
Clive CurdDip Prop Invest, MRICS, [email protected]: 0203 7937 154Mob: 07502 376 973
Nolan MastersMRICS, ATT, BSc (Hons)[email protected]: 0203 7714 315Mob: 07502 376 204
David GibsonMRICS, ATT, BSc (Hons)[email protected]: 0203 7714 316Mob: 07502 376 957
46 Blandford Street, W1U 7HTTelephone: 0203 1300 293www.veritasadvisory.co.uk