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Markel Tax

15 Jun 2020

Capital Allowances for Leaseholders

The potential for property owners to claim allowances on expenditure relating to fixtures within a building, whether through the purchase of a property or on subsequent renovations, has been well documented. Here we explore how leaseholders can benefit from this tax relief.

Capital Allowances on the Grant of a Lease

Ownership usually forms a primary condition when claiming plant and machinery allowances, as indicated in CAA2001 s 11(4). Leaseholders of commercial properties could see this as a barrier to claiming capital allowances on any improvements carried out by the leaseholder to the property during their tenancy. If a tenant installs a new air conditioning system, for example, this would become integrated into the property and become part of the fabric of the building owned by the landlord. In doing so, it represents a lasting improvement to the landlord’s building, particularly as the air conditioning would likely remain in place after the cessation of the tenancy. However, the landlord is unlikely to be able to make a claim on this as they did not incur the expenditure.   

Instead, CAA 2001, s 173 to s 176 provides for parties with a “relevant interest” in qualifying land to claim for expenditure incurred on fixtures installed into a property. In this case, a lease would constitute such a relevant interest, allowing leaseholders to benefit from tax relief on investments and improvements they make to properties during their tenancy. If a party incurs capital expenditure on plant and machinery to be used in qualifying commercial activities and that equipment becomes a fixture of the building then provided that party has a relevant interest in the land they will be treated as the owner of that fixture as a result of incurring that expenditure. Where both parties contribute to the cost of purchase and installation of a fixture, both parties would be able to make a claim under these rules.

To ensure you do not miss out on the availability of such reliefs we would advise carrying out a review of the leasehold agreement and analysis of any expenditure incurred on fittings. Markel Tax’s capital allowances division is able to assist in such cases and has access to a team of chartered surveyors to help maximise the potential reliefs available.

For further information and support with these or any other tax-related issues, please contact
Adam Ellerington, Senior Tax Manager or call 0333 920 5708.

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Tagged Capital allowances Capital allowances
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