Property capital allowances are a form of tax relief for owners of commercial properties and furnished holiday lets. They let you deduct part or all of the value of certain business-related expenses from your taxable profits, thereby lowering your overall tax bill.  

The government allows regular, non-property-based businesses to claim capital allowances on items they require to operate. For instance, firms can claim on items they use in their business, such as the cost of disposing of plant and machinery, integral parts of buildings, some fixtures and fittings, and alterations to capital items, excluding repairs. 

Something similar applies to property-based businesses and companies. Just like regular firms, property owners who acquire buildings with productive fixtures attached, such as lifts, lighting and heating can claim relief. The government recognises that these features add value to the building and that, like regular capital expenses, they are necessary for the continued generation of income. Renters, for instance, would not be willing to use a holiday let without electricity or heating. 

For commercial property owners, these allowances can yield substantial savings. For instance, businesses can subtract the cost of modifying integral features (such as escalators, air conditioning units, hot water systems, and electrical systems) from their profits. They can also reduce their taxable income by claiming for fixtures, such as fire alarms, CCTV systems, kitchens and bathrooms. In some cases, they may also be eligible for capital gains allowances if they are renovating business premises in disadvantaged areas of the UK, engaged in dredging, or altering the structure of their premises. 

For residential property owners, property capital allowances are a little stricter. You can only make a claim if you run a furnished holiday letting business or the item in question is a common feature of a residential building, such as a desk in a shared reception area for a block of flats. If you generate income from a holiday home, you may only claim for capital allowances if you make the property available for let for more than 210 days per year and get renters for more than 105 days per year. 

While the benefits for residential property owners are a little more restrictive than for commercial property owners, capital allowances can permit large savings on your overall tax bill from your operations. 

Ultimately, property capital allowances allow you to lower your taxable profits, whether you’re a sole trader, partner, or limited company. 

Property capital allowances can sometimes be a little tricky to understand, especially if you haven’t encountered them before. Only a small minority of applicable taxpayers are currently taking advantage of them, meaning that most are paying higher taxes than required by law. 

Here, Smart Solutions Taxation & Accounting can help. With an experienced agent on your side, you can quickly determine whether you qualify for any allowances and whether you can lower your tax bill. Depending on how many qualifying capital purchases you’ve made, the reduction in the amount of tax you have to pay can be considerable. 

How you claim for property capital allowances depends on your HMRC status. 

If you are a sole trader, you can include your property capital allowances on your self-assessment or ask your agent to include them in your returns. 

If you are a partner in a company, then you can claim property capital allowances on your partnership tax return. 

Lastly, if you file via a limited company, you must include a separate capital allowance calculation on your company tax return. 

When filing for property capital allowances, you need to include information on when you bought the property. Include the date you signed the contract and when any payments on the property are due. 

Confusingly, property capital allowances and capital gains allowances for property are not the same.

If you sell a property in the UK, you may be liable to pay capital gains tax (CGT). CGT is a tax the government applies to the difference between the price you bought the property, and the price you sell. There is no tax to pay if you make a loss. 

If you are selling your main home, you usually do not need to pay CGT. The government waives the CGT requirement if the property is your primary residence (you live there most of the time). However, you may have to pay a CGT bill if you are selling a second home, holiday home or buy-to-let property you own. 

Currently, basic rate taxpayers (people earning over the 20 percent income tax threshold), pay 18 percent CGT on any capital gains they make when selling a property. Higher rate taxpayers (those earning over the 40 percent income tax threshold) pay 28 percent on their gains. If you are an individual, you can use the CGT allowance to shield the first £12,300 of your profits from CGT. And if you are a couple, you can combine your allowances to shield the first £24,600 from any gain. You’ll still need to pay CGT on gains over these thresholds. 

In summary, property capital allowances are an accounting tool that allows certain types of property owners to reduce necessary capital expenditure from their taxable income. This, in turn, reduces their overall tax bill, improving their financial position. Commercial property owners can often slash their bills considerably. However, residential property capital allowances are quite restrictive. Regular landlords cannot usually claim them, except for shared fixtures in reception areas. 

Only around 10 percent of eligible property owners make property capital allowance claims. That means that HMRC could owe you a substantial sum of money. As experienced accountants, we can help you determine whether you can make a claim and claim back overpaid tax.