Monthly Tax Idea – April 2011
Subsidising building purchase costs
On 1 April 2008, cold water and general electrical systems became eligible for capital allowances for the first time, when they were included in the definition of ‘integral features’. Integral features are types of assets which are typically included in buildings to make them fit for use, and are listed in the Capital Allowances Act.
The inclusion of cold water and general electrical systems gives rise to a significant tax saving opportunity where a building has been purchased on or after 1 April 2008 which itself had previously been ineligible for industrial buildings allowances. This is due to the fact that no capital allowances can ever have been claimed on these assets before, meaning that the value that the purchaser attributes them is not limited in the same way as on assets on which capital allowances have been claimed by the vendor. Instead, the value is found by making a just and reasonable apportionment of the purchase price using replacement values of the assets in question and the land and buildings. This will typically give a much higher value than historic cost, and the amounts in question can be so significant they effectively subsidise the purchase price of the building. This idea is most relevant to purchases from a property developer, or of a building such as an office or shop, as industrial buildings allowances will not have been claimed.
This opportunity may, however, be short lived following an announcement at the recent Budget, so if you have acquired a building for use in your trade, profession or for investment purposes on or after 1 April 2008, it is important you act quickly to make a claim. It is even conceivable that the opportunity may be stopped as soon as 31 May 2011 when HM Revenue & Customs issue a consultation document on integral features.