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Benefits of Capital Allowance

Find out about the Benefits of Capital Allowance

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Benefits of Capital Allowance

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  1. Benefits of Capital Allowance bnwaccountants.co.uk

  2. Introduction Capital allowance is the way of reducing your tax bill when you spend money on something that’ll be a benefit for your business in the long term.

  3. “Benefits” Not fully utilizing the benefit of Capital Allowances on development will ultimately reduce profits after tax for business or lower the returns on investment. Development

  4. Budget Often for a business or investor embarking on development, its primary concern is the management of costs to deliver the project within budget. While the claiming of Capital Allowances does not reduce the outlay of expenditure to pay for such developments, they do reduce costs post-completion.

  5. Reducing amount of Tax The development of a standard Cat- A office which costs say £10m to build will typically attract Capital Allowances of up to £4.5m. In benefit terms, if the property is to be held by an owner-occupier or investor deriving an income, paying company tax return at say 20%, the total benefit to them would be a £900,000 cash saving, by reducing the amount of tax which would otherwise be paying.

  6. Feasibility Point of View From a feasibility point of view, the net cost of the development is rather £9.1m, albeit the allowances claimed over many years.

  7. Cash Benefit The benefit attained, is directly correlated to the given tax rate payable by the claimant. Therefore, the benefit to a high net worth individual, who could be in a partnership, paying 45% tax rate is going to have a higher cash benefit than for a corporation tax returnpayer of currently 19%.

  8. Tax Revenue Irrespective of the benefit attainable, research as shown that the majority of claims are not processed, down to a variety of reasons, which means that in our example £900,000, of tax revenue is passed back to HMRC.

  9. Significant Value The Capital Allowances should still quantify so that they can include within the heads of terms. By highlighting to a potential buyer, the unclaimed value of Capital Allowances while may not always lead to the higher purchase price, but a significant value can still add to the deal as part of the overall negotiations.

  10. REITs and PAIFs For REITs (Real Estate Investment Trusts) and PAIFs (Property Authorised Investment Funds), are legally required to claim Capital Allowances under a shadow tax regime. While there is no direct tax benefit, as tax pays at an investor level, it does, however, provide a benefit by retaining cash in the business by reducing the amount which distributes to the investors via a PID (property income dividend).

  11. Visit our Websitehttps://www.bnwaccountants.co.uk Contact Us:141 Morden Road, Mitcham, CR4 4DGinfo@bnwaccountants.co.uk0208 648 0800 Follow Us on

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