Commercial Property activity in Belfast remains strong. There has been a surge of development projects including hotels, student accommodation and a number of refurbishments to older buildings. Within the last few months one of Northern Irelands’ largest single commercial property transactions was completed with the recent acquisition of a major Belfast shopping centre.
With a clear increase in commercial property transactions, it is important to recognise the tax reliefs that can be availed of.
One of the most common tax reliefs often overlooked in respect of commercial properties is the availability of capital allowances on fixtures.
Often, purchasers or developers are unaware that the fixtures which allow the building to function, can be separated from the cost of the building and capital allowances may be claimed in respect of these. For capital allowance purposes, ‘fixtures’ are plant and machinery within buildings which extend to large mechanical and engineering items such as heating and water systems, air conditioning, lifts and escalators to smaller items such as fire alarm systems and CCTV.
Although capital assets may be depreciated for accounting purposes, this depreciation is not an allowable deduction in the tax calculation; capital allowances are claimed instead of depreciation on capital assets. On eligible assets you can deduct a percentage of the capital expenditure from your profits each year, and over time the capital allowances should effectively provide 100% relief of qualifying capital expenditure by a purchaser or a developer.
Each commercial property will be different with regards to the type of capital expenditure it incurs so it is worthwhile taking time to identify any potential claims. The underlying principles of the claim require each piece of expenditure to be categorised into various capital allowance pools, based on tax legislation and case law. These pools are subject to different rates of capital allowances and should be considered carefully. In some instances 100% relief may even be given in the year of purchase.
With regard to the purchase of second hand commercial properties, capital allowances can be a complex area. There are elections and pooling requirements which should be considered at the time of purchasing the commercial property. Both parties should formally agree the value of fixtures within two years of completion and pre-sale tax planning may be required to ensure the maximum capital allowance claim will be available to the new owner. Timing is off utmost importance.
Capital allowance claims can clearly create substantial tax savings so if you are considering a commercial property acquisition or development, it is extremely important to seek appropriate tax advice on the allowances available. Otherwise large tax reliefs may be lost forever.