Leonard Kasler & Company
Capital Allowances
(20 Things for a Businessman to Know)
Note: law may have changed since this was written.
1. Capital allowances are a form of tax relief.
2. They are available to Companies that either own property or incur large capital expenditure in fitting out.
3. There are two main types of capital allowances available on a commercial property.
PMA
4. One of them is a Plant and Machinery Allowance ("PMA").
5. Plant includes air conditioning, heating, fire alarms, furniture, carpets, curtains and sanitary fittings.
6. Any purchase price paid has to be apportioned between the bare land, the Plant and the building.
7. A writing down allowance of 25% on a reducing balance basis is made.
8. This means that in Year One 25% of the qualifying expenditure is claimed, Year Two 18.75% and so on.
9. Formerly, the parties were free to agree valuations and thereby the level of allowances claimed.
10. The Finance Act 1985 restricted this, so that a Buyer could not claim a larger value than the immediate Seller had paid on his purchase.
11. Now the maximum value, on which PMA can be claimed, is the first one after 24th July 1996.
12. Unless the Buyer can prove the situation, the claim will not be allowed.
IBA
13. Another type of capital allowance is Industrial Building Allowance ("IBA").
14. An industrial building is assumed to have a life of 25 years.
15. IBA is available at 4% on a straight line basis.
16. This means that in Year One, you claim 4%, Year Two 4% and so on until either all the allowance is claimed or the building disposed of.
17. The building must be used for the purpose of a "qualifying trade" as defined.
18. There is a clawback procedure on the sale.
General
19. Although your solicitor should make all the necessary enquiries in conducting the purchase, you can do this in your preliminary discussions with the Vendor.
20. If you hear something that you do not like, you can back out then and save legal costs
Michael Breeze
Leoanrd Kasler & Company