Tax relief on buildings. The Grant Thornton capital allowances service

Transcription

1 Tax relief on buildings The Grant Thornton capital allowances service 5

2 Background to capital allowances Capital allowances are a statutory right to tax relief. As well as the more widely understood items of plant, machinery and equipment, allowances are available on expenditure incurred in buying, building, fitting out and refurbishing commercial property. They are available to property investors, owners and occupiers where property is either held as an investment or used for the purposes of a trade. Benefits available Capital allowances act to reduce the amount of income charged to tax. There are significant benefits to a taxpayer in claiming these allowances. These benefits include: A very low risk means of reducing tax liabilities Post tax yields on investments can be significantly enhanced Tax relief is available for capital expenditure where it may not otherwise be available under normal computational principles 150% - For remediation of contaminated land (companies only) - relief exceeds the amount of money spent and, in addition, such expenditure can result in a repayment of tax if the company is in a loss making position 20% (18% from April 2012) - Reducing balance allowance on plant and machinery Allowances available 100% - For energy and water efficient technology - For renovation of certain empty business premises - For renovation of flats above shops (to be abolished from April 2013) - For buildings used for research and development purposes - The first 100,000 of expenditure each year qualifies for 100% tax relief (reducing to 25,000 from April 2012) 10% (8% from April 2012) - Reducing balance allowance on integral features - Reducing balance allowance on long life assets Types of qualifying expenditure The breadth of property expenditure which qualifies for allowances is vast. Examples of some of the more common items of expenditure which attract plant and machinery allowances or integral features allowances are: Heating or cooling systems Lift installations Security and protection systems Communications and IT systems Mechanical and electrical installations Fixtures and fittings Sanitaryware and associated plumbing Specialist items specifically required for a particular trade Certain professional costs 2

3 Grant Thornton's capital allowances service In preparing your capital allowances claim we will combine our experience gained from many years of dealing with contractors, investors, developers and property users with our understanding of property and construction matters. Our expert property knowledge is backed up by our deep understanding of legislation and case law, and the combination of these skills allows us to maximise claims for capital allowances. Our approach to claims We pride ourselves on tailoring our services to the individual needs of clients. We treat every client as unique. Because the rules relating to capital allowances are so complex and varied, there is no 'one size fits all' solution. The key to delivering excellent value for money to you is understanding your business and requirements. Bespoke We will meet with you to establish the precise facts in relation to your future plans for your property holdings and the historic claims position. We will gather relevant information to establish the opportunities available to improve your tax position. Following this initial contact, we will agree terms and a timescale for delivering our bespoke service to you. We will minimise the disruption of dealing with a claim by liaising directly with your professional advisers during the course of the claim. Experience The team involved in the claim will all be appropriately professionally qualified and experienced. We will work with non-tax property professionals such as architects, quantity surveyors and project managers who have been involved with the property(ies). If necessary, we will arrange for suitably experienced quantity surveyors to assist with establishing the appropriate costs and valuations to optimise claims. Benchmarking We will use our unique Capital Allowances Database (CAD) to benchmark your claim against similar claims within your sector. This will provide you with comfort that your claims are robust and will hopefully withstand scrutiny from HM Revenue & Customs (HMRC). To date, CAD has been used to prepare capital allowances claims with a value in excess of 1.6 billion and tracks 4,500 individual items. On site review In addition to establishing and reviewing your total project costings, we will undertake a full capital allowances survey to ascertain the qualifying expenditure in the property. In our experience, a site visit will increase the amount of tax relief available by letting us see at first hand the way an asset is being used within the business. In some cases, we may be able to develop an argument why a normally non-qualifying item could qualify for tax relief. At the end of our work, you will have a detailed self-supporting capital allowances claim for submission to HMRC. Our experience has enabled us to develop a certificate that reduces the likelihood of challenge by HMRC. 3

4 Retrospective claims Capital allowances are an often overlooked allowance in relation to property. There are many reasons why claims are not optimised. These include: The complexity of the underlying legislation and case law means that many items of qualifying expenditure are overlooked The fact that capital allowances is a specialist field in which many organisation do not have the necessary expert resources A lack of detailed cost information or a lack of internal resource to deal with claims A historic loss making position may have put claimants off incurring the cost of making a claim in the past, but it will be beneficial to do so on a return to profit An often incorrect assumption that allowances are not available on second-hand buildings A misplaced belief that claims on past expenditure are time limited Whatever the reason, a thorough review of the past history of expenditure on property assets usually reveals an opportunity to improve the claim, often significantly, and often generating cash refunds for the claimant. Our initial meeting will set out the opportunities for making back claims and the information that we require to properly establish whether any such claim is feasible. Legislative changes currently proposed mean that it will no longer be possible for the seller of a property to transfer the benefit of capital allowances to a subsequent purchaser without the seller itself making a claim and agreeing the allocation of disposal proceeds to those items with the purchaser. As a result, it will be more important than ever to establish entitlement to capital allowances especially where it may be desired to pass the benefit of these on to a later owner. A selection of claims for our clients Property type Expenditure type Purchase price/ expenditure million Allowance identified million Student accommodation New build Motor retail premises New build Low grade commercial offices Second-hand purchase Medium grade office block Refurbishment Conference centre/hotel Second-hand purchase Hotel New build Department store Fit out Self-storage portfolio Mixed new and used million of revenue expenditure also identified 4

5 Outline of engagement terms While we operate by agreeing individual terms of engagement specific to your requirements, we have set out below the key commercial terms which would apply in a typical engagement. A no obligation meeting to understand and identify the scope of opportunities A contingent fee basis - the final fee will be based on the level of allowances ultimately agreed by HMRC Fees are based on a percentage of allowances identified Fees are payable only at the point of delivery of capital allowances certificate based on the allowances identified in the certificate. There is no cash outlay until a quantified claim has been established. Any adjustment to fees resulting from HMRC challenge are refundable at the point of agreement of the final position with HMRC Fees for the involvement of quantity surveyors, if required, may be charged in addition to the above percentages The fee is inclusive of dealing with HMRC enquiries into the claim should they arise 1 All fees are exclusive of VAT which will be added where appropriate. This covers dealing with aspect enquiries only. In the unlikely event that a claim proceeds to Tax Tribunal, separate fee arrangements would apply. All claims should be capable of settlement by negotiation and proceeding to tribunal should only be where benefit is expected to outweigh cost. The above terms are for guidance only in respect of the approach taken on contingent capital allowances services. Specific terms of engagement will be agreed in the event that Grant Thornton is engaged to provide capital allowance review services. About Grant Thornton Grant Thornton is a global network of professional services firms. We are ranked fifth in size amongst accountancy firms both internationally and in the UK. We are leading specialists in the provision of accounting, tax and advisory services to the real estate and construction sectors with a dedicated network of professionals operating in this sector. In addition to our capital allowances service, we offer a full range or tax, accounting, corporate finance, recovery and reorganisation, forensic and government infrastructure and advisory services. In dealing your capital allowances claims we will, if you wish, highlight any other tax or commercial issues or opportunities that come to light during the course of our review. 5

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