Bedford-Campus
 

Examples

Post April 2008

Take an air-conditioned office building purchased for £10 million in 2010 by a Corporation Taxpayer with a 31st March year end. Capital allowances may have an apportioned value of say £2.9 million, of which £2.3 million qualifies as Integral Features, with the remaining £0.6 million qualifying as Plant and Machinery.

With a corporate tax rate of 28%, the first year saving alone to the investor’s tax bill in the year ended 31st March 2011 in this example will be £98,000 (28% of £120,000 plus £230,000). Taking account of the reduction in Writing-Down Allowances and Corporation Tax rates, there will be a saving of £219,320 over the first three year period.

Year Ended
31st March
Qualifying Plant & Machinery Writing-Down Allowance QualifyingIntegral Features Writing-Down Allowance Tax Relief to a Corporation
Taxpayer
2011 600,000 120,000 2,300,000 230,000 98,000
2012 480,000 86,400 2,070,000 165,600 65,520
2013 393,600 70,848 1,904,400 152,352 55,800

If this property has a 6% yield, it will be equivalent to only 4.32% after 28% tax. Capital allowances relief of £98,000 in the first year has the effect of increasing the net yield to 5.3%.

An overseas investor will pay tax at 20% on the income received, equivalent to £120,000 on the £600,000 rent. The first year’s capital allowances will therefore substantially reduce the first year’s tax liability!

Post April 2008 – Where a Comprehensive Claim has Previously been Made

Where a previous owner has made a comprehensive capital allowances claim on expenditure incurred prior to April 2008 and has brought a disposal value into account for the qualifying Plant and Machinery, by way of an Election under section 198 Capital Allowances Act 2001, possibly in the sum of £1 (see section on Sale of Buildings), it may still be possible to claim for certain Integral Features that previously did not qualify for capital allowances, such as cold water installations, lighting and general power.

Using the same air-conditioned office building purchased for £10 million in 2010 which has been subject to a previous claim relating to expenditure incurred pre April 2008 and where a £1 Election (CAA 2001) has been agreed, capital allowances on the unclaimed allowances may have an apportioned value of say £0.5 million.

With a corporate tax rate of 28%, the first year saving alone to the investor’s tax bill in the year ended 31st March 2011 in this example will still be £14,000 (28% of £50,000) despite the restrictions. Taking account of the reduction in Writing-Down Allowances and Corporation Tax rates, there will be a saving of £31,640 over the first three year period.

Year Ended
31st March
Qualifying Integral Features Writing-Down Allowance Tax Relief to a Corporation Taxpayer
2011 500,000 50,000 14,000
2012 450,000 36,000 9,360
2013 414,000 33,120 8,280

If this property has a 6% yield, it will be equivalent to only 4.32% after 28% tax. Capital allowances relief of £14,000 in the first year has the effect of increasing the net yield to 4.46%.

Pre April 2008

Take the same air-conditioned office building purchased for £10 million in March 2008, but allowances claimed in subsequent years. The Plant and Machinery might have an apportioned cost of say £2.4 million.

With a corporate tax rate of 28%, the first year saving alone to the investor’s tax bill in the year ended 31st March 2011 in this example will still be £134,000 (28% of £480,000). Taking account of the reduction in Writing-Down Allowances and Corporation Tax rates, there will be a saving of £295,104 over the first three year period.

Year Ended
31st March
Qualifying Plant & Machinery Writing-Down Allowance Tax Relief to a Corporation Taxpayer
2011 2,400,000 480,000 134,400
2012 1,920,000 345,600 89,856
2013 1,574,000 283,392 70,848

If this property has a 6% yield, it will be equivalent to only 4.32% after 28% tax. Capital allowances relief of £134,400 in the first year has the effect of increasing the net yield to 5.66%.

 
 
 

The information contained in our website is believed to be correct, but there may be errors or omissions for which PJB cannot be responsible. It is therefore essential to take advice on specific issues.

 

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Purchase Price

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Your options here are;

  • Office.
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  • Mixed Use.
  • Industrial: Including warehouses and distribution centres.
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