Property Investors – What You Need To Know About Capital Allowances

Corporate tax rates are set to increase by 30% from April 2023. This means that as a Property Investor, your income and capital gains are exposed to higher taxes, which will tighten your margins and cashflow.

Below we have highlighted three simple ways that investors can improve their margins and reduce risk:

1. Acquisitions – Capital Allowances typically increase yields by between 0.25% and 1%

  • Capital Allowances are often overlooked in investment appraisals; however, we have advised on some recent transactions where the identification of available capital allowances have assisted in making the deal viable.
  • Don’t accept a Seller’s Capital Allowances position at face value, even where a £2 s198 election is inherited. Opportunities may be available to claim due to the timing of the expenditure, tenancies, tax positions or specifics of the Capital Allowances legislation that many are unaware of.
  • Always ask for a second opinion on the legal position; there are no costs for most initial legal entitlement checks and advice.

2. Asset Management – Reduce Cost of Energy Efficiency Requirements

  • From April this year commercial buildings must achieve a minimum ‘E’ efficiency standard. From 2028 it is proposed that rating will be ‘B’.
  • Capital Allowances can typically reduce the net cost of capital expenditure by up to 45% for partnerships and individuals, or 25% for companies.
  • In many cases using a Capital Allowances specialist can typically identify up to 50% more Capital Allowances than an accountant.

3. Reduce Risk – Capitalised Expenditure v Profit & Loss

  • Many clients write off 100% of their construction expenditure in the P&L and not as capital, this is technically incorrect and increases the chances f an HMRC enquiry.
  • GAAP requirements mean that building projects and associated professional fees must be capitalised where there are any works capital in nature, such as improvements, changes or additions.
  • Only individual works which are a direct repair or replacement qualify as capitalised revenue and can be allocated to the profit and loss; detailed analysis of all building projects will correctly account for the works, maximising savings and reducing risk.

CPN have a number of member firms who are specialists in Property Investment. If you would like to have an initial chat about your needs, or be connected with a local specialist, please get in touch.

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