Refurbishment of a property creates a wide range of opportunities to obtain accelerated tax deductions with a high cash value. The spend on the refurbishment of a property can create a broader range of tax deductibles than when a property is being freshly constructed. It is not unusual to find that between 50 and 75% of the costs of a refurbishment can qualify for tax deduction with a greater proportion of spend available for immediate tax deduction.
If you are carrying out a refurbishment project, the first question to ask is whether any of the expenditure would qualify as a repair. The repair must be a ‘like-for-like’ replacement of an existing asset. If this is the case, then it is likely that 100% tax relief would be available for the expenditure incurred. However, if any part of the refurbishment is an improvement as opposed to a repair then this will be treated as capital expenditure. Capital expenditure on the structure of the building (e.g. walls, floors, ceilings etc.) will not attract any tax relief. However, capital allowances may be available if any of the expenditure is for plant and machinery or integral features.
Annual Investment Allowance (AIA)
The AIA provides a 100% deduction for the cost of plant and machinery or integral fixtures and fittings up to a certain annual limit. The current limit of £200k was set with effect from 1st January 2016, however, the recent budget announced that legislation will be introduced to temporarily increase the AIA limit to £1,000,000 from 1st January 2019 for two years. For expenditure in excess of the AIA, then ‘writing down allowances’ are currently available at 18% on plant and machinery and 8% on integral fixtures and fittings, although it was announced in the recent budget that the writing down allowance on the special rate pool will fall from 8 to 6% with effect from 1st April 2019 if chargeable to corporation tax, or 6th April 2019 for businesses chargeable to income tax. Therefore, if you are planning a substantial building project, it would be beneficial to consider the timing of your expenditure.
Common qualifying items in a building are set out below (this list is not exhaustive):
• Moveable partition walls
• Storage equipment, including cold rooms
• Fire and burglar alarm systems
• Advertising signs
• Computers and CCTV systems
• Gas and sewerage system requirements
• Cookers, washing machines, refrigerator, basins, toilets etc.
• Swimming pools
• Electrical systems, including wiring and lighting systems
• Ceilings/floors where they perform a function (i.e. an integral part of the heating system)
• Solar panels
• Hot and cold water systems
• Space and water heating systems
• Air conditioning systems
• Lifts and escalators
• Kitchen and bathrooms fittings
• Tax relief on property refurbishment.
Enhanced Capital Allowances (providing 100% tax relief in year one) are also available for energy-saving and water-efficient plant and equipment. This tax relief is in addition to the 100% AIA limit, which is useful in a year with significant capital spend.
The list of qualifying categories is regularly updated and can be found at www.gov.uk/guidance/energy-technology-list. Each product must meet specific criteria, but some examples of qualifying ‘green’ technology items include:
• Pipe insulation
• High-speed hand air dryers
• White LED lighting
• Refrigeration equipment.
If you have recently refurbished or built a non-residential property and do not think you have maximised your capital allowance claim, then do contact us to identify the scope and value of a potential further claim.