3/20/2019 CAPITAL ALLOWANCES 19 MARCH 2019 1 WHAT ARE CAPITAL - - PDF document
3/20/2019 CAPITAL ALLOWANCES 19 MARCH 2019 1 WHAT ARE CAPITAL ALLOWANCES Government tax incentive not a scheme Determined by legislation and 100 years of case law Interpreted and claimed by tax payers but not automatically
19 MARCH 2019
WHAT ARE CAPITAL ALLOWANCES
WHAT IS THE BENEFIT OF CLAIMING CA
HOW IT WORKS
CASH BENEFIT OF £1M QUALIFYING EXPENDITURE MAIN TYPES OF CAPITAL ALLOWANCES
18% Plant & Machinery Allowances 8% Integral Features and Thermal Insulation (reducing to 6% April 2019) 100% Enhanced Capital Allowances (applicable until April 2020) 100% Annual Investment Allowance (£1,000,000) 100% Research & Development Allowances 2% Structures and Buildings Allowances (contracts entered into after 29 October 2018) 150% Land Remediation Relief
HOW TO UNLOCK THE BENEFIT
Tax Free Fixtures Non Qualifying Capital
CLAIM OPPORTUNITY 1 - ON ACQUISITION
CLAIM OPPORTUNITY 2 - ON DEVELOPMENT
CLAIM OPPORTUNITY 3 - ON LEASE INCENTIVES
CLAIM OPPORTUNITY 4 - REFURB OF CORES
CLAIM OPPORTUNITY 5 - FULL REFURBISHMENT
LAND REMEDIATION RELIEF CLAIMS
ACQUISITIONS – KEY TERMINOLOGY IN SIMPLE TERMS
ACQUISITIONS - ESTABLISH LEGAL ENTITLEMENT Who is Vendor? Taxpayer / Pension / Local Authority / Offshore? Interest Acquired Freehold / Leasehold? Prior Claim History Back to First Use Historic Expenditure Timing of and By Whom Structures & Buildings Allowance Record Keeping & Basis
ACQUISITIONS – BUYER TO ESTABLISH ENTITLEMENT
MISSED CLAIM OPPORTUNITIES ON ACQUISITIONS Timing of Expenditure Pre / Post April 2008 Capital Contributions Fall Outside of s198 election Non Tax Paying Tenants s181 - Claim on tenants fit out Properties Acquired Vacant / Part Vacant Potential claim on retained fixtures Unclaimed Allowances Lack of Due Diligence
CASE STUDY - OFFICE ACQUISITION MISSED CLAIMS £750,000 of Lost Capital Allowances Due to Incomplete / Poor DD By Sellers
A Office developed 1990s s198 election on sale £1 B Fund ‘A’ acquired June 2013 Carry out air con works s198 election on sale £490,000 (A/C works only) C Fund ‘B’ Acquired November 2016 Accept election; fail to identify unclaimed CAs D Client Acquires Q1 2019 Inherit unclaimed allowances £450,000 T
CASE STUDY - INDUSTRIAL ACQUISITION Barrier: Vendor Believed No CAs Available and Advised ‘Not Applicable’ Value: £3,900,000 Client: UK Investor Background: Vendor acquired in 2016 with £2 election Vendor didn’t make own enquiries Claim based on Vendor purchase price £380,000 Capital Allowances CASE STUDY - COMPANY ACQUISITION Barrier: CA Position Silent and No Info Provided Value: £50,000,000 Client: Overseas Investor Cash Saving: £1,500,000 MISSED CLAIM OPPORTUNITIES Think it is too late / No record of costs Annual Investment Allowance – confusion if applies to elections Non Recoverable VAT – Interaction with CAs not understood Perception need to own property Not profit making but have future tax liabilities Failure to Structure Grants / Contributions Client assumes accountant addressing it / tick list exercise
Accountant QS Lawyer Client
CASE STUDY - DOCTORS SURGERY EXTENSION Barrier: Advised CA value too small Received Grants = 90% of Final Account NHS - £500,000 Pharmacy - £670,000 Value: £1,300,000 Final Account Client: GP Partnership (Partners not VAT registered) Cash Saving: £205,000 CORPORATION TAX REFORM Increased future tax liability for Offshore Companies April 2019 CGT applies. Most effect in 3-4 years time April 2020 Tax rate reduced from 20% to 17%, but Restriction on deductible interest to value of £2m across Group Capital Allowances will become more important to offshore investors What Next? Plan for future tax liabilities. Claim now and build up allowances STRUCTURAL AND BUILDINGS ALLOWANCES (SBAS)
STRUCTURAL AND BUILDINGS ALLOWANCES (SBAS)
TOTAL CAPITAL ALLOWANCES – TIMING OF
0.5 1 1.5 2 2.5 3 3.5 4 4.5 1 2 3 4 5 6 7 8 9 10 £million Years SBA 2% Integral 6% Plant&Mach 18% AIA£1million Enhanced 100% Land Remed 150%
TOTAL TAX SAVINGS – TIMING OF
200,000 300,000 400,000 500,000 600,000 700,000 800,000 1 2 3 4 5 6 7 8 9 10 Tax saved
STRUCTURAL AND BUILDINGS ALLOWANCES (SBAS)
STRUCTURAL AND BUILDINGS ALLOWANCES (SBAS)
CASE 1 – GRAIN SILO – WHAT IS PLANT HMRC allowed 20% of value for ventilation HMRC – internally a good case but to “hold the line” Definition - a building / a facility / a silo Was the storage temporary? Function and trade Tax payer wins CASE 2 –HYDROELECTRIC DAM – WORKS TO LAND CASE 2 –HYDROELECTRIC DAM – WORKS TO LAND SSE claimed £260million, HMRC accepted £34million! Alteration of land for plant, the concrete structure The concrete structure was not plant The aqueduct, drill and blasted and shotcrete was plant Since ruling new legislation was brought in!
CASE 3 – CARE HOME – CORRECT CLAIMS CASE 3 – CARE HOME – CORRECT CLAIMS Claim for £318,792, part win for £254,602? Claim at purchase was above vendors claim! Vendors claim included cold water not eligible Valuation office said methodology of claim was wrong Contract allocated fixtures on the wrong value
Clive Curd Dip Prop Invest, MRICS, MCIOB clive.curd@veritasadvisory.co.uk DDI: 020 3793 7154 Mob: 07502 376 973 Nolan Masters MRICS, ATT, BSc (Hons) nolan.masters@veritasadvisory.co.uk DDI: 020 3771 4315 Mob: 07502 376 204 David Gibson MRICS, ATT, BSc (Hons) david.gibson@veritasadvisory.co.uk DDI: 020 3771 4316 Mob: 07502 376 957
30 Newman Street, London, W1T 1PT T elephone: 020 3130 0293 www.veritasadvisory.co.uk
Tim Sketchley Director tsketchley@oplml.co.uk DDI: 0207 409 7055 Mob: 07764 398 177