Listen to this episode below:
Today I am delighted to be joined by Bill Loryman. Bill is the managing director of HMO Tax and the sales director of The Bailey Group. These companies offer a range of commercial and property tax services, but on one of Bill’s specialist subjects is capital allowances.
This is a subject that many property investors know little about, but one that has the potential to save a lot of us a lot of money if handled in the right way.
It’s something I wasn’t really familiar with until a few months ago, so I invited Bill along to give us an overview of what exactly they are, and who can take advantage of them.
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Highlights of some of the major questions covered are listed below, but there are really only two ways to ensure you’re taking full advantage of the capital allowances you are entitled to:
1) Listen to the interview with Bill above
2) Give him a call to find out if your portfolio qualifies
What Are Capital Allowances?
Capital allowances came into law in 1878 to help property owners invest in additional property. The details are covered in a 520 page textbook – not something we need to get too bogged down with!
In a nutshell though, capital allowances are savings you can make on both your company and personal taxes based on specific purchases you make, including many types of property and renovations.
How Much Can I Save?
There is a sliding scale of allowances based on the type of property from 10% of your expenditure at the bottom end for some types of residential property up to 45% for things like hotels and care homes (of both the property price/fixtures and fittings, and the money spent on renovations).
Part of the great benefit of capital allowances is that they can be awarded in way of a tax rebate on what you’ve already paid, a deduction on this year’s taxable income, and even an amount you can offset against future taxes if you haven’t paid much tax so far.
What Type of Properties Qualify for Capital Allowances?
The simple answer is ‘a lot more than you would expect’. Everything including HMOs, student lets, pubs, clubs, restaurants, care homes, offices, holiday lets, warehouses, factories and even some types of standard buy to let properties.
Even if you’re converting one of the commercial property classes into residential, you can still claim against the property.
How Can I Claim?
The first step is to understand if any of your existing or planned property purchases qualify. To maximise the value of a claim, certain things need to be done during the conveyancing process, and certainly before any work starts, so the sooner you can find out about your next purchase the better.
Then you need to determine whether or not pursuing the allowances are worthwhile based on your own tax situation. Once you’ve done that, a survey of the property is required by a capital allowance expert, and working with someone like Bill at The Bailey Group will take care of all of these details for you.
His team work alongside your accountants and solicitors to ensure all the details are taken care of.
How About an Example?
Let’s assume you purchase a £500,000 office block with the purpose of converting it into residential units. There would be approximately £150,000 of capital allowances on the property based on a 30% rate for this type of office.
This could either be claimed against your personal income, and assuming you’re a higher rate tax payer that would equate to a £60,000 reduction in the tax you pay. If the property was owned by a limited company taxed at 20%, there would be a £30,000 reduction in the corporation tax for the company.
Keep in mind that these savings roll over, so if your personal tax bill was only £30,000 this year, you would retain the further £30,000 as a reduction against future tax!
During the rest of the interview we go into a lot more detail about how the process works, the specifics of what can be claimed against, how to make a claim etc. If you think your portfolio (existing or future) may qualify for capital allowance claims then the best step is to give Bill a call.
Bill Loryman’s Links & Resources
The Bailey Group – Find out more information about capital allowances, the rest of the Bailey Group team, and all of their contact details
Call Bill Loryman – 01327 340408