Understanding the complexity of capital allowances on buildings is a tricky business. Below you will find details for different building types and different circumstances. If you require consultation on how to reclaim capital costs on buildings through a tax rebate then please contact us today on: +44 (0) 2076 295005 or +44 (0) 7747 608854
Introduction to Capital Allowances on Buildings
CA expenditure incurred on certain integral features of buildings attracts the 8% special rate of WDAs (writing down allowance).
These assets include:
1. electrical systems (including lighting systems);
2. cold water systems;
3. space or water heating systems, powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such systems.
Long Life Assets of at Least 25 Years
The WDA rate on long-life assets is 8% (10% before April 2012) and the original pool brought forward is called a special rate pool. A long life asset, when new, is expected to have a useful life of 25 years.
For some buildings with integral features the expenditure will be allocated to the new special rate pool and will attract WDA at 8% per annum (10% from April 2008 to April 2012).
A WDA of 8% special rate applies to expenditure incurred on certain integral features, which include:
(a) electrical systems (including lighting systems);
(b) cold water systems; and
(c) space or water heating systems, powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such systems.
The rules for WDA (writing down allowances) apply to both initial and replacement expenditure. Replacement expenditure is incurred where either the whole or more than 50% of the integral features is replaced in a 12-month period.
Short Life Assets for Capital Allowances on Buildings
The pooling of short-life assets within the main pool would not give full relief for the cost over their life-span. This is because when they are disposed of any unrelieved expenditure remains in the pool to be written off over future years, except where the business has ceased, when a pool adjustment is made.
Therefore, an election can be made to have the capital allowances on specified items of P&M (plant and machinery) calculated separately in single asset pools under the “short-life assets” provisions.
A balancing allowance or balancing charge can arise if an asset is disposed of either within 4 or 8 years from the end of the accounting period in which it was acquired.
Click here for details on capital allowances on property improvements in general.
Capital Allowances on Assets with Part Private Use
Where business assets are also privately used by a sole proprietor or a partner, such an asset will be dealt with in the single asset pool.
Allowances and charges for each privately used asset are calculated in the normal way, but the available allowance or charge is restricted to the proportion used for the business.
An individual balancing adjustment is made on the disposal of such an asset.
CA on Industrial Buildings and Structures (IBS)
IBS covers factories as well as a range of other types of building. However, the allowance of 4% on a straight line writing-down basis was phased out in 2011-12.
Therefore, no allowances are available for chargeable periods beginning on or after 6 April 2011.
Click here for the technical note on the new capital allowance for structures and buildings costs which is available from 29 October 2018.
Agricultural Buildings and Works (ABS)
The 4% straight line writing-down allowance for ABS was phased out in 2011-12, as in the case above.
Capital Allowances on Hotels
Capital allowances for hotels were available for construction costs in respect of a qualifying hotel or hotel extension.
Writing down allowances (WDA) were reduced from 2008-2009 and were withdrawn completely from April 2011.
However, enterprise zone hotels which are qualified for enterprise zone allowances on buildings continue to receive such allowances with no restriction on months of opening or number of rooms, etc.
For all the cases listed above there are detailed rules governing which type of asset qualifies. In no case are allowances due on the cost of land or interests in land.
A “reducing balance” allowance is one where the percentage is applied each year to the remaining balance of unrelieved expenditure.
For example, if a taxpayer spends £1,000 on plant or machinery, he normally gets 25% of £1,000 (£250) in the first year. In the second year he gets 25% of £750, which is £188; and so on.
A “straight line” allowance is one where the allowance is the same every year until the expenditure has all been relieved. For example, if a taxpayer has spent £1,000 on an industrial building, he would normally have been allowed a fixed allowance of £40 each year for 25 years (4% each year for 25 years).