CAPITAL ALLOWANCES FOR INVESTORS AND OCCUPIERS PROJECT & DEVELOPMENT SERVICES

Transcription

1 CAPITAL ALLOWANCES FOR INVESTORS AND OCCUPIERS PROJECT & DEVELOPMENT SERVICES

2 2 / CAPITAL ALLOWANCES CAPITAL ALLOWANCES / 3 CAPITAL ALLOWANCES DEFINING CAPITAL ALLOWANCES WHAT CAN YOU CLAIM? Capital allowances save money they are the only means of providing tax relief for capital expenditure incurred by both UK and overseas taxpayers on commercial property. They are an incentive to invest as you can offset tax on profits by the amount of allowances claimed. Capital allowances therefore reduce taxable profits for companies, businesses and individuals and should always be considered as early as possible. Any property or construction transaction can give rise to an opportunity to claim allowances, and when you have made a claim, you should take steps to protect your benefit even if you plan to dispose of the property or asset that gave rise to the claim. REFURBISHMENT Capital allowances value up to 90% of the project cost Over decades, case law and legislation have tried to define what can be claimed over decades, but the position is still by no means clear. That is why a specialist is needed to TYPICAL EXAMPLES Project cost* FITTING OUT PROJECT 2.75m maximise what can be claimed on each type of property and transaction. What is not in doubt is the significant benefit that can be realised if you involve a specialist. NEW BUILD PROJECT Project cost* 20m FIT OUT Capital allowances value up to 85% of the project cost Enhanced allowance boost cash flow Enhanced allowance boost cash flow CAPITAL ALLOWANCES BENEFITS AND CONSIDERATION NEW BUILD Capital allowances value up to 50% of the build cost You could make claims annually Total allowances range 2m to 2.35m Cash benefit to client 415,000 First year cash benefit 125,000 PROPERTY ACQUISITION Total allowances range Cash benefit to client 10.7m to 11.65m 2.1m First year cash benefit 635,000 REFURBISHMENT PROJECT Capital allowances are an incredibly valuable source of tax saving for anyone incurring capital expenditure on property. Whether buying, building, refurbishing or fitting out commercial property, all clients should seek specialist advice in this area. Patrick Knight, Partner Capital Allowances, Cushman & Wakefield PROPERTY SALE Protect your position and check tax history Mandatory tax rules to comply with PROPERTY ACQUISITION Capital allowances up to 30% of the purchase price Plan your position early to secure maximum value Project cost* 50m Total allowances range** Cash benefit to client 7.75m to 12.5m 1.9m First year cash benefit 250,000 Project cost* 5m Total allowances range * includes fees, prelims and variations and Stamp Duty Land Tax where appropriate. ** assumes a land value of 21m 3.25m to 4.25m Cash benefit to client 710,000 First year cash benefit 215,000 All calculations above are based on the midpoint of the range shown and are for illustration purposes only. They assume the person incurring the expenditure is eligible to make a claim. These figures are not guarantees of the level of claim that can be made and a detailed analysis of any individual project should be carried out by a specialist to ascertain actual claim values in each case.

3 4 / CAPITAL ALLOWANCES CAPITAL ALLOWANCES / 5 OUR SERVICES Capital allowances arise on all types of property and it is essential that they are considered at the earliest possible opportunity to get the best results. OUR SERVICE STAGES DUE DILIGENCE DOCUMENTATION REVIEW PROPERTY SURVEY DETAILED ANALYSIS REPORT PRODUCTION AND SUBMISSION NEGOTIATION AND SETTLEMENT check all the factors to ensure you have a valid claim collect all supporting information for the claim, check the tax history of the property and fixture ownership establish whether you have made any contributions to expenditure of others, that may entitle you to claim additional allowances. gather all the documentation required for the claim review it in detail to confirm we have a full understanding of the project ensure we have the information required to accurately assess the value of the claim create a full audit trail to support it, including drawings, specifications and cost data. carry out a capital allowances survey of the property make photographic and handwritten notes on purchased property, if no drawings are available, we will measure and draw the floor plans ourselves if required. prepare a detailed analysis of the expenditure incurred show the tax treatment for each item where detailed building costs are not available, we can re-create an estimate of the property rebuild cost assess the underlying land value. compile the results of our analysis in a detailed report which sets out all the information about the claim being made design the report so that it is suitable for submission to HMRC as support for your claim in the tax return deal with any queries raised answer your questions about the capital allowances report. answer any questions that are raised about the capital allowances report deal directly with your tax inspector or via your tax team negotiate to reach a settlement of the claim subject to your approval as our due diligence process is robust we can deal with any queries that do arise quickly and efficiently. OUR SERVICE LINES FIT OUT OR REFURBISHMENT PROJECTS RESEARCH AND DEVELOPMENT ALLOWANCES PROPERTY CONSTRUCTION AND DEVELOPMENT RESEARCH AND DEVELOPMENT TAX CREDITS PROPERTY PURCHASES AND DISPOSALS ENTERPRISE ZONE ALLOWANCES CPSE (COMMERCIAL PROPERTY STANDARD ENQUIRIES) AND SECTION 198 ELECTION DRAFTING SERVICES LAND REMEDIATION RELIEF

4 6 / CAPITAL ALLOWANCES CAPITAL ALLOWANCES / 7 OUR TEAM CUSHMAN & WAKEFIELD S CAPITAL ALLOWANCES OFFER JEANETTE EDMISTON We offer vast experience on all types of properties and a proven approach to setting out claim reports so that HMRC have all the information they need to sign off the claim quickly with minimal questions. When engaged early enough on a project we can provide a tax planning review to identify any additional tax savings that could be made. We are confident we can improve your claim because our systematic approach means opportunities to claim are not missed and no alternative types of claim are overlooked. The fee investment is more than recouped by the extent of the claim we can generate. Jeanette, who initially qualified as a quantity surveyor, has over 35 years of experience in capital allowances. Jeanette spent 14 years working at Big Four accountancy firms Deloitte and KPMG and 15 years at large quantity surveying firms and niche CA consultancies. She has acted for clients such as HSBC, Chelsea Football Club, Barclays, Barchester Healthcare and Microsoft amongst others. She has written numerous articles on capital allowances for the broadsheets, tax magazines, property magazines and tax and property websites. She also wrote the capital allowances section of the RICS Property Guide. She was an invited member of the consultation panel who worked with HMRC to formulate changes to the fixtures rules in 2012, which was one of the last key amendments to the legislation. I have been involved with capital allowances for over 30 years and I still continue to find capital allowances just as exciting and fascinating as I did when I first learned about it. Allowances can make such a difference to a project and the benefits really boost the client s business. It is very rewarding to be able to have a positive impact on projects and help clients make savings they were not expecting. Jeanette Edmiston, Partner Capital Allowances, Cushman & Wakefield PATRICK KNIGHT Before joining Cushman & Wakefield, Patrick together with Jeanette, owned a successful Property Tax Consultancy. He has over 10 years experience including working at a leading boutique tax firm. He was an Assistant Head of Department at Cyril Sweett and has managed capital allowances projects for some of the largest property companies in the UK. Patrick is highly experienced in this sector with a good understanding of all capital allowances matters from fit out and refurbishments to new build construction. He has worked with clients such as Land Securities, Kerry Group, Invesco, Intu Properties and Canary Wharf Group amongst others. Jeanette and Patrick are standout advisors in this specialist area. Their advice will benefit our clients and further enhances our comprehensive range of services for both investors and occupiers alike. Nic Wilkinson, Head of London, Cushman & Wakefield

5 8 / CAPITAL ALLOWANCES CAPITAL ALLOWANCES / 9 QUESTIONS & ANSWERS HOW MUCH COULD MY COMPANY SAVE? For example, if annual profits of a business are 1 million and the business has incurred capital expenditure giving entitlement to capital allowances of 400,000 for the year, the taxable profits will be reduced to 600,000. Even at a low tax rate this would save the business thousands of pounds in tax. IS MY COMPANY ELIGIBLE FOR CAPITAL ALLOWANCES? Capital allowances are the only means of providing tax relief for capital expenditure incurred by both UK and overseas taxpayers on commercial property. They act as an incentive to invest by saving money for these businesses. They do this by offsetting tax on profits which would otherwise be due by the amount of allowances claimed. Capital allowances therefore reduce taxable profits for companies, businesses and individuals. WHAT IS THE REAL BENEFIT? HOW DO YOU CLAIM CAPITAL ALLOWANCES? Our comprehensive report format covers most queries that HMRC may have relating to the claim, and our service also includes any correspondence and negotiation with HMRC to agree the claim if it is required. WHAT QUALIFIES AS PLANT AND MACHINERY? WHY DO THEY EXIST? They act as an incentive for businesses to keep investing in property and other business assets. Capital allowances provide tax relief for capital expenditure on items of plant and machinery. Depreciation of fixed assets is not-allowable and not deducted from taxable profits, so no other tax relief is available on this expenditure. Capital allowances were brought in to give a relief against tax and help keep the economy healthy. The benefit is simple we can help reduce your tax liability and therefore you pay a lot less tax. The hidden benefit is the peace of mind in knowing that your claim is being prepared by an expert who will produce a detailed report on an open book basis in a technically robust fashion, so that you do not have to worry about this part of your tax computation. HOW MUCH WILL IT COST ME? Our fees are based on the level of allowances identified and will always be less than the first year tax benefit. If we cannot or won t save any tax we will not charge you a fee. Allowances can only be claimed in a tax return. Accountants and finance teams should be aware of capital allowances but are unlikely to have mix of the surveying, valuation and real estate expertise to be able to maximise the amount that may be available. In our experience, over a third of accountants will not consider capital allowances at all. The higher the claim for allowances, the lower the tax a business will pay, so it is key to claim all that you can. Capital allowances claims are typically quantified and drafted by capital allowances experts and Cushman & Wakefield have in depth expertise. We will work alongside the client and their accountant to produce the best results possible. We will analyse the expenditure incurred in detail, identify and categorise all the assets that will qualify for capital allowances relief, and produce a report that can be submitted with the tax computations. Our comprehensive report format covers most queries that HMRC may have relating to the claim, and our service also includes any correspondence and negotiation with HMRC to agree the claim if it is required. There is no definitive definition or list of the exact items which qualify as plant and machinery for tax purposes. The legislation starts by saying that buildings and structures cannot be plant and then lists a series of classes of assets that are not included in the blanket exclusion. Even so, it is still by no means clear what can and cannot be claimed and in different types of property the same item can be treated differently. Consequently, it is necessary to apply certain tests, which have developed through decades of case law to determine what can qualify. What becomes apparent through these tests is that what is, or is not, qualifying expenditure, will depend on the particular facts in each case. The conclusion reached will also be largely dictated by the type of business being run by the property owner, as well as the nature of the physical items.

6 10 / CAPITAL ALLOWANCES CAPITAL ALLOWANCES / 11 EXPERIENCE CONSTRUCTION OF LANDMARK BUILDING IN LONDON 250M BUILD COST 160M OF CAPITAL ALLOWANCES GIVING RISE TO APPROX 30M OF TAX BENEFIT HIGH END RESTAURANT CHAIN REFURBISHMENTS ANNUAL REFURBISHMENT COSTS OF 7.2M 5.9M OF CAPITAL ALLOWANCES GIVING RISE TO APPROX 1.12M OF TAX BENEFIT CREATION OF A FIXED ASSET RECORDING SYSTEM FOR A LEADING HEALTHCARE COMPANY ANNUAL COSTS C. 100M ON CARE HOMES UK WIDE 35-90% OF EXPENDITURE WAS QUALIFYING CONSTRUCTION OF LEADING IT COMPANY HEAD OFFICE 200M (INCLUDING FIT OUT) 115M OF CAPITAL ALLOWANCES AVAILABLE GIVING RISE TO APPROX. 22M OF TAX BENEFIT REFURBISHMENT OF HIGH STREET BANKING CHAIN BRANCHES UK WIDE 200M+ REFURB COST ACROSS 170 BRANCHES 150M OF CAPITAL ALLOWANCES AVAILABLE GIVING RISE TO APPROX. 28M OF TAX BENEFIT LEADING FOOD & INGREDIENTS GROUP, ANNUAL EXPENDITURE ANALYSIS ANNUAL EXPENDITURE OF 35-50M ACROSS PORTFOLIO 40-60% OF EXPENDITURE TYPICALLY QUALIFIES ADDITIONAL SERVICES LAND REMEDIATION RELIEF Land Remediation Relief applies for expenditure incurred on cleaning up land acquired in a contaminated state. It provides a deduction of 100%, plus an additional deduction of 50%, for qualifying expenditure incurred by companies in cleaning up land acquired from a third party in a contaminated state. RESEARCH & DEVELOPMENT CAPITAL ALLOWANCES (RDAS) RDAs are less known than other capital allowances such as Plant and Machinery Allowances (PMAs); In spite of this, they offer a 100% deduction for any capital expenditure on R&D facilities. Expenditure eligible for RDAs includes the cost of purchasing capital equipment for use in R&D activities, and constructing, extending and refurbishing facilities in which R&D activities take place. In some cases, entire buildings can be claimed as plant in their own right. RDAs release cash into a business by writing down all of the expenditure incurred on fixed assets, which in turn reduces your company s corporation tax.

7 CONTACTS JEANETTE EDMISTON Partner Capital Allowances T +44 (0) M +44 (0) jeanette.edmiston@cushwake.com PATRICK KNIGHT Partner Capital Allowances T +44 (0) M +44 (0) patrick.knight@cushwake.com NIC WILKINSON Head of London T +44 (0) M +44 (0) nic.wilkinson@cushwake.com PAUL MONTGOMERY Head of London Cost Consultancy T +44 (0) M +44 (0) paul.montgomery@cushwake.com The information contained here is, to the best of our knowledge, correct at the time of going to print and designed to provide guidance on the subject of capital allowances on commercial property. Any reference made to report submissions to HMRC will be done by the clients accountant and all information relating to our service is subject to our normal terms and conditions. Cushman & Wakefield only provide capital allowances and R&D services and not any other wider corporation or income tax services and nothing in this report should be taken to imply that they do. (January 2018) Copyright 2018 Cushman & Wakefield. All rights reserved. CUS /18