Capital allowances are the only form of tax relief available to UK taxpayers for their expenditure on commercial property. The items that can be used to reduce taxable profits are usually inherent items of plant and machinery within the fabric of the building. These items are usually taken for granted within the overall purchase price of the property.
After a thorough investigation of the properties tax history, a value is attributed to items of equipment fitted to or within the fabric of the building. These are items that should they be replaced, would normally be written off against tax through your renewal, refurbishment, or capital accounts. What we are looking for are original, or replacement items not already tax utilised.
These items include radiators, heating systems, wires in the walls, switch gear, alarms, toilets, sinks, basins, door furniture and cabling among many other pieces of equipment.
What could this allowance be worth?
The value of these capital allowances is dependent on the type of property and its use. However, a typical project will identify from 10% to 50% of the purchase, or build cost as an allowance. That allowance can be used to reduce income or corporation tax liability and in some cases could lead to a refund of tax paid.
How is this allowance used?
Your accountant could use up to 18% of the total allowances to reduce your tax liability every year.
For example if £100,000 of allowances are found then you could use up to £18,000 in the first year to reduce your taxable profits, which could be worth £7,200.
Could I lose the allowance?
Yes, if you sell your building and have not claimed. Your solicitor during the sale process will now ask if the allowances have been completed and what figure would you like to pass to the new owner. If you have not investigated the allowances, then you could be forced into doing so by the purchaser.
Practice location – this practice occupies a twostorey detached property located on a busy main road with a mix of shops and residential properties. There is free street parking around the practice and excellent transport links.
Practice type – this is a three-surgery mixed practice, which has been established for over 40 years. The principal is selling due to other family commitments and would be prepared to stay on for a period of time to facilitate a smooth transition. The practice is being sold as leasehold.
Financials – the gross fee income is shown to be in the region of £400,000 and comprises of 55% NHS-GDS contract and 45% fee per item. The gross has been generated by the principal working full time in the practice and supported by associate two days a week and a hygienist two days a month. This team is complimented by a part time receptionist and three part-time nurses.
Price achieved – a price of £645,000 was achieved, which was significantly in excess of the asking price.
Agent’s comments – this practice generated a lot of interest, so much so we entered into a sealed bids process and with reconstituted profits of 47% you can understand why. The practice has 17 years remaining on the lease, which is a great help when the terms of a bank loan are set against the terms of the lease. We always advise principals thinking of selling to ensure their lease is in order and has as many years available as possible.
Practice location – this practice was set up from squat by the current owner in 1998 and is located in a busy town centre within converted commercial premises. The surrounding shops and amenities help drive footfall to the area and there is good public transport links, as well as plentiful free parking nearby.
Practice type – this is a seven surgery, mixed practice with a large NHS contract. The vendor owns the freehold and is looking to create a new lease for an incoming buyer.
Buyer appetite – the practice generated significant interest amongst our priority tier buyers, with 8 viewings arranged.
Financials – the practice holds an NHS Contract of £555,419 generated from 20,056 UDAs; a UDA rate of £27.69. Turnover is £761,283 with the remaining income generated from capitation (c.£45k) and fee per item work. The current principal works alongside four associates and one hygienist with the income generated fairly evenly between them all. There are six qualified dental nurses, one apprentice and one practice manager employed with pay rates reflecting experience.
Reason for sale/incoming purchaser – the current principal was looking to reduce their management responsibilities however they were keen to continue working in the practice as an associate post-sale. This suited the incoming buyer who was purchasing a second practice for investment purposes. The transaction took a year to complete and was delayed by the various complexities of creating the new lease.
Price achieved – £965,000 inclusive of goodwill, equipment, fixtures and fittings. The price achieved was higher than the original marketing price of £945,000 due to multiple offers creating a competitive bidding situation.
Practice location – established in 1980, this practice was set up from squat by the current principal and occupies a purpose built two-storey premises within an affluent village. There is significant housing development taking place nearby which may lead to an increased patient list over the coming years.
Practice type – the practice is fully private with three available surgeries, however the surgeries are not fully utilised and this is something that can be addressed post-sale to maximise turnover. The premises are to be taken over on a leasehold basis.
Buyer appetite – the practice attracted over 1,500 web views with full sales information being sent to 185 buyers and multiple purchasers attending viewings.
Financials – the annual turnover of £246,854 is made up of £60,000 capitation alongside the fee per item work, with 80% of the income delivered by the principal and 20% by the hygienist. The practice employs one full-time and two part-time dental nurses who also cover reception duties.
Reason for sale/incoming purchaser– the current principal was planning to retire but they were open to options with regards continuing at the practice post-sale. The successful purchaser was a first time buyer looking to work in the practice full-time. The under-occupation of the three surgeries meant that both the vendor and the buyer could work in the practice simultaneously ensuring a smooth transition and the continuity of income moving forward. The transaction took 6.5 months to complete.
Price achieved – £240,000 inclusive of goodwill, equipment, fixtures and fittings.