Capital allowances: Key considerations for care homes

What are capital allowances?

Capital allowances provide tax relief to UK businesses for incurring capital expenditure on buying, building or refurbishing property.

Claiming £1m of assets as qualifying for full expensing could save £250k of corporate tax in the year of expenditure.

The recent increase in corporation tax rate and expansion of first year allowances have greatly increased the value of capital allowances in recent years, for companies.

Four checks to help increase capital allowances

Don’t assume that your accountant has claimed your allowances in full – not all advisers have access to capital allowances specialists or suitable experience in your sector. A review of the following may generate a significant tax refund or reduce future tax liabilities.

1. Second-hand property acquisitions- we list below a few opportunities that can arise even if there’s a Section 198 election in place to fix the level of capital allowances transferring under the transaction:

• The seller was not subject to corporation tax, such as a government body, a local authority, pension fund (including SIPPs), charity or the NHS
• The property was previously used for residential purposes including properties provided for residential care, where the services were provided by a third party or through an OpCo / PropCo structure
• The seller held the property prior to 31 March 2008
• The seller held the property as stock in their accounts and could not make a claim
• Review tax computations to ensure that claims have been made for all capital allowances elections and all chattels acquired as part of the transaction
• Review Commercial Property Standard Enquiries (CPSE) documents where “not applicable” is stated – these replies often contain errors or are misunderstood, leading to significant underclaims and missed opportunities
• A previous landlord made a contribution towards a tenant’s fit out

2. Underclaimed or overlooked claims often arise due to a lack of construction cost or purchase information. Breaking down those costs using site surveys, plan drawings and industry standard cost data can unlock additional relief and improve the overall level of claims.

3. “Closed years” – many companies (and some advisors) think that they can only claim capital allowances in the year that expenditure is incurred – however, with very few time limits, if the qualifying assets are still owned, claims could be made. A review can cover more than 10 years of expenditure to identify additional allowances.

4. Associated costs, such as preliminaries, professional fees and irrecoverable VAT, which can also qualify for capital allowances.

How can we help?

Our expert national capital allowances team offers comprehensive advice on capital allowances. With a blend of tax, surveying and accounting expertise, we bring a wealth of experience to the able. Our proficiency lies in assessing care and residential homes, as well as other medical care facilities, enabling us to understand the unique challenges and opportunities within this sector. Additionally, we are well-versed in identifying the trade specific assets and property attributes that are eligible for allowances.

Who to contact

Jeremy Chapman

Head of Capital Allowances
T + 44 (0)20 7728 3262
E Jeremy.f.chapman@uk.gt.com

Stephen Foster

Associate Director
T + 44 (0)131 659 8577
E stephen.a.foster@uk.gt.com