If you own commercial premises, or are considering purchasing commercial premises, you may be eligible to claim capital allowances, which could potentially reduce your tax bill by thousands of pounds.

What are capital allowances?

Capital allowances allow property owners who spend money buying or improving plant and machinery to offset some of that expenditure against profits of general income, decreasing tax liability.

What expenditure will qualify for the relief?

Expenditure on many types of plant and machinery may qualify for capital allowances, such as:

- electrical systems;

- heating and air conditioning;

- lifts

- thermal insulation; and

- computer software.

In order to qualify for the relief, the expenditure must be incurred by the acquisition, construction or alteration/refurbishment of a building which contains plant and machinery. The allowances can therefore be claimed on the purchase of a property and by existing property owners on a yearly basis, based on any qualifying expenditure incurred during that year.

Why are capital allowances relevant to commercial property transactions?

On the purchase of commercial property the buyer may be able to claim capital allowances. The value of the allowances claimed will depend on the specification of the building, the price paid and whether a previous owner has claimed them.

A seller may be able to retain the capital allowances claimed in the past by entering into an election with the buyer to apportion them.

Future developments

The Government is currently examining changes which may limit future claims for capital allowances. Amongst other things, it is considering introducing a set time limit within which capital allowances can be claimed in relation to qualifying assets.