New allowances on integral features
The new capital allowances rules for equipment installed in buildings make it more important than ever to classify correctly all expenditure on construction, refurbishment and repair of buildings.
This year’s reform of capital allowances introduced a new 10% annual rate of writing down allowance for specified equipment that forms an integral feature of a building. Some of the items previously qualified for the 25% writing down allowance. Other items, such as ordinary lighting and cold water systems, did not qualify at all because they were considered to be part of the building itself.
Integral features are defined as electrical and lighting systems, water, heating, ventilation and air conditioning systems. This includes the floors and ceilings comprised in such systems, as well as lifts, escalators and external solar shading. The new 10% allowance will also be available for thermal insulation of a building, except where it is used for a residential property business.
Integral features qualify for the annual investment allowance that gives 100% tax relief for the first £50,000 a year of expenditure on equipment. For smaller businesses, planning the timing of expenditure to minimise the excess over £50,000 in any year will accelerate tax relief. Integral features cannot be classified as short-life assets to obtain faster relief.
Other plant and machinery in buildings, including toilet and kitchen facilities, qualify for the 20% rate of writing down allowances.
The cost of repairs is normally allowable in full. However, if in any 12-month period the cost of repairing an integral feature is more than 50% of the cost of replacing it in full, the expenditure will only qualify for the 10% relief. So if you intend to carry out repairs, for example to a heating system, you will need to get an estimate of the cost of full replacement and keep a running total of your expenditure.
We can help you maximise tax relief on all your expenditure on buildings and equipment. Please get in touch – ideally at the planning stage.