Capital Allowances Budget 2018 – Part 1

The 2018 Autumn Budget proposed some exciting changes year for Capital Allowances.

A new allowance, the Buildings Allowance, has been introduced which will allow businesses to claim Capital Allowances on structures and buildings. This is effective from 29 October 2018 and provides an annual tax deduction from taxable profits equal to 2% of the original cost of a new commercial structure or building. As long as the business is within the charge to UK tax, the allowance can also be claimed on properties situated overseas.  Unlike other forms of Capital Allowances, if a business does not claim the allowance in a year, it will be lost.

It should be noted the relief can only be claimed for contracts entered into on or after 29 October and HMRC will introduce anti-avoidance to prevent existing contracts being revised with the aim to access this new relief.

To maximise tax reliefs and improve cashflow for businesses, work should still be carried out to identify building expenditure that will qualify for tax relief at a higher annual rate. Capital Allowances will be claimed on this as normal and these amounts will be excluded from expenditure qualifying for the Buildings Allowance.

The mechanics of the allowances will differ slightly from other allowances in that there will be no balancing allowance or balancing charges on disposal. Alternatively, the cost for calculating the capital gain on a future disposal will be reduced by allowances which have been claimed to date.

There will be future implications when a building is purchased which has been subject to a claim for Buildings Allowances. The new owner can only continue to claim the same allowance on the original cost for the balance of the 50 year period. On this basis it will be imperative that sufficient information is obtained from the previous owners to allow a claim to be made.

In our second blog on the changes to Capital allowances, I will look at the changes to Annual Investment Allowance.

For more information, please do not hesitate to get in touch.