Just Do It: Tax
Article 1
Colin Davison
Colin Davison, property accountant specialising in tax and business support for property investors has an interesting background. To contact Colin about any tax related issues email colin.davison@justdoproperty.com Resources |
Take advantage of £50,000 – Annual Investment Allowance, HMOs and BTLs
(Article dedicated to David Farren, Winchester property investor taken suddenly)
In April 2009, we saw a new change in the property investment front, a new tax benefit open to all Buy to let owners, commercial investors as well as variants like those with HMOs.
If you own a property, you may be able to review your outgoing costs for items which will qualify for Capital Allowances. Previously these allowances have been set at 50% in the first year then 25% of the balance that remained. The property owner used to call me out to review many items that they would buy. The commercial client would have a survey typically to review these items. Since 2009, these costs could be claimed 100% but only up to £50,0000 and then over that level just 20% can be claimed each year.
It is expected many HMO and Commercial owners will benefit the most but it is possible for others to get some kind of claim back.
Okay, so if you have paid these in the past, what do you do? Well with tax returns, it is possible to go back 5 further years being 2009, so to 5th April 2005 and claim back these items, of course the allowances were less generous then but a large rebate could be possible. Under a claim your capital allowance on a commercial deal will be offset against other income so a claim from employment would be ideal. So whatever form of investor you are there is some potential for a rebate being on offer.
Capital Allowances – some more details?
Known in the text books as Plant & Machinery Capital Allowances, they do not need to actually be Plant or Machinery but relate to the tax relief associated with certain qualifying items within a building. I see all accountants miss this when I look over the affairs of many property businesses like hotels, offices and industrial units. There would be potential for development work within BTLs as well but the benefits would be much smaller given the value of the work. One area for larger properties will be within all communal areas.
Here is the science bit and where in many property tax consultancies they will need the support of a surveyor to help. The items qualifying for Plant and Machinery are not easy to spot. When you buy a building and use it as an HMO, does your sales agency give you the breakdown of the P&M Items, does the solicitor. DO you hear of these when you visit your friendly property coach at the property meeting? Does it appear on your invoice? No of course you do not, in fact that is where the value in a tax consultant will come in. Do not go for those who just crunch or select support based on cost.
These items have been correctly listed in accordance with Surveyor’s headings, identified, valued and documented, you can reclaim previous allowances. In all circumstances this will lead to a reduction in the income from a trade. If the allowances are linked to a residential property a separate trading activity can be created for the allowances alone. These will then be offset against Income tax which has been paid, it could then reduce your current year income tax liability, or roll forward the loss to the future and then reduce your tax for the future.
There is no time restriction on claiming – just do it.
Capital Allowances are like an accounting term called depreciation; they are aimed to find items which have a loss of value. Indeed Industrial Property has additional allowances which are finishing on 5 April 2009 so there could be additional ways to claim if you rent out commercial property.
Can you claim if it is shared with someone else? Yes, the claim will be shared. If in a partnership it would be listed separately as a trading loss if the partnership just rents property. It part of a commercial let like HMO, office, pub or hotel it will be part of the income you have from the trading activity.
So what can be covered? This list is produced by HMRC and has approval from other advisors:
Plant & Machinery Allowances Relief
For HMOs, the list of “Plant and machinery” is anticipated to include:
- “Ambience” assets, make it feel like a nice atmosphere!
- carpets and removable floor coverings
- demountable partitioning used for trade flexibility
- emergency lighting
- fire alarm installations
- fire fighting equipment
- fittings and furniture
- heating and air‐conditioning
- hot water installation
- lifts
- mechanical door closers
- New electrical installations where this is run on top of a shell commercial unit
- sanitary fittings
- security equipment
- switchgear
- thermal insulation and building alterations
- telecommunications installations
- trade and information signs
- vehicle control equipment
- window cleaning equipment
- wiring to anything which can be removed but is actually fixed to the wall
The rate of relief is 100% in the year of acquisition of the equipment of purchase of the property under
Annual Investment Allowance and if already purchased, ongoing relief is normally 20% each year.
Who Can Claim?
- Must be a UK Tax Payer (Either Income tax, or Corporation tax)
- Must incur the capital expenditure.
- Must be ‘qualifying’ items of expenditure or ‘qualifying’ buildings.
What Can Be Claimed?
- Development of property
- Fit out works
- Refurbishment or alteration works to existing property
- Purchase of property
How much can be saved?
Typically, between 15% and 25% of the purchase price of a HMO property will qualify for Plant & Machinery Capital Allowances Tax relief.
Purchase Price Capital Allowances available (tax free income)
£100,000 £20,000
£120,000 £24,000
£140,000 £28,000
£160,000 £32,000
£180,000 £36,000
£200,000 £40,000
£250,000 £50,000
£300,000 £60,000
£350,000 £70,000
For more information on this area or a free review of your purchases in the last 5 years, please call Colin Davison, Cranleys Property Tax Advisors, Winton House Basingstoke RG21 8EN on 01256 830000 or email colin.davison@cranleys.co.uk Call today for a free telephone discussion.
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