+44 (0) 20 7329 1300

Capital Allowances & Landlord Contributions to Tenant Fitting Out Works

It is sometimes essential to offer incentives to attract tenants to take space in a vacant property.  Typically these will be in the form of a general cash payment, contribution to tenant fit out or a rent-free period.

Of these the contribution route can be the most tax efficient for the landlord as there is a possibility of claiming capital allowances on the tenant fit out spend where it relates to qualifying plant and machinery fitted by the tenant.  This is relevant as it is common for 60%-80% of office fit out expenses be on qualifying items such as air-conditioning, lighting and welfare facilities.


Contract wording

It is important the contribution is correctly described as, “capital contribution to tenant’s fitting out works” in the agreement for lease so the landlord can safeguard their entitlement to allowances on expenditure incurred by the tenant.  This is an unusual situation in capital allowances where entitlement generally follows the person who directly incurs the expenditure.

Lovell Consulting have developed specific wording which can set out the priority order of set off of the contribution to give the greatest tax saving for either the landlord or tenant.  It is usually the party with specialist advice who provides the appropriate contract wording and consequently benefits the most.  Therefore agreeing this prior to agreement for lease is important.

In addition to the above, the draft legal documents can assist with practical matters and could include for;

  • Agreeing the tenant will only claim capital allowances in respect of plant and machinery not covered by the contribution
  • Require cooperation from the tenant and their fit out contractors to supply full cost breakdowns of the fitting out expenditure

Something to consider if the total contribution is higher than the potential qualifying expenditure is to make a rent-free period in lieu of the excess.


Contribution allowances conditions

There are a conditions to be met for the landlord to be able to claim capital allowances for the capital contributions it makes towards the costs of equipment and fixtures purchased by another person as follows;

  • The person making the contribution should not be connected, for example where a group is split into an operating company and property holding company this would be caught;
  • The tenant or person receiving the allowances must be entitled to claim allowances.  This means where the tenant is a non-tax payer such as a charity it would usually be better for tax purposes for the landlord to incur the fit out costs directly and allow the charity to contribute to these;
  • The landlords contribution needs to a capital item in the landlords accounts

 Interaction with other capital allowances claims

It is worth noting that for property sales by landlords who have made contributions to tenants the new mandatory pooling rules will not impact on capital allowances that have been claimed by them on contributions as these are pooled and transferred separately.  The unused benefit of allowances is always passed on to the new owner and it is not possible to fix the disposal value of plant and machinery covered by a contribution in a tax election.

Landlords can effectively reduce its net outlay by claiming capital allowances on the contribution that can be attributed to qualifying tenant fit out costs. For example, for every £100,000 contribution that can be attributed fully to qualifying plant this represents £20,000 tax savings, an effective 20% reduction in the net cost of the contribution expenditure.


Tenant’s perspective

There needs to be a net benefit to the tenant if it is to be worthwhile for the landlord to make a contribution.  The idea is that the contribution meets costs that are the responsibility of the tenant but will not necessarily improve the value of the property.  This means the expenditure is treated as if it benefits the tenant and so is a reverse premium on which the tenant is taxed, unless one of the following exceptions are met, in which case the tenant is not taxed;

  • To the extent the contribution is used by the tenant towards costs of qualifying plant and machinery and the tenant sets off the contribution against fixed assets.  The tenant is not taxed in this case.
  • The tenant reimburses the landlord for the fit out costs met by the landlord.  The additional rent needs to directly reflect the value contributed by the landlord and this needs to be documented to ensure HMRC cannot challenge that there is no net benefit received by the tenant;
  • Where the tenant is responsible for completion of the landlords shell under the lease and the landlord reimburses these costs then there is an increase in the reversionary interest in the lease and the tenant effectively receives a tax-free value.
Back to News


Lovell Coffee Seminar May & June 2018

New Capital Allowances CPD Seminar Dates


Capital Allowances within Commercial Sale and Purchase Contracts


OTS Review on Capital Allowances and Accounts Depreciation


20 Years of Capital Allowances


Lovell Consulting Capital Allowances Student Prize Winner 2017


Pension Funds and Capital Allowances Interactions


Lexis Nexis Webinar – Capital Allowances in 2017


Capital Allowances and Demountable Partitions; To Move or Not to Move?


Employees Claiming Capital Allowances: Caravan Case Demonstrates Hurdles!


Capital Allowances, Corporation Tax Loss Relief & Interest Deductions – Act Now


Corporation Tax Loss Relief & Interest Deductions: Capital Allowances


Capital Allowances, Trustees and Tax Havens


Interview: A Little Capital Allowances Knowledge Can Be Dangerous


MBL Seminar Dates Announced (Capital Allowances in Retail, Hospitality & Offices)


2016 Lovell Consulting Capital Allowances Art Prize Voting Begins


Capital Allowances in the Retail Sector

Palm with a plant growng from pile of coins

Free Cash, Tax Savings & Capital Allowances for SMEs Going Green


Student Accommodation & Capital Allowances


Lovell Consulting Capital Allowances Student Prize Winner 2016


Capital Allowances within Offices

MBL Webinar

MBL Webinar – Capital Allowances for Property Surveyors


Capital Allowances & Data Centres


Tax Journal Interview: One minute with…John Lovell, Capital Allowances Specialist


Claiming Capital Allowances and / or Repairs


Commercial Property Standard Enquiries: Capital Allowances

New Picture (54)

LexisNexis Webinar – Tax for General Practice & Capital Allowances


Artful Plant: When Capital Allowances may be Claimed on a Painting

New Picture (44)

LexisNexis Webinar – Commercial Property Law & Capital Allowances


New Capital Allowances Team Appointment – Glenn Ramos

New Picture (48)

MBL Webinar for Property Lawyers and Tax Advisers (Capital Allowances)


Fundamental Changes to Interest Deductions & Impact for Capital Allowances

playground-99509_960_720 - Copy

Capital Allowances within Childcare Facilities & Schools


John Lovell Comments: 2016 Budget – Impact on Capital Allowances: Commercial Property


Capital Allowances Team Announcements


Better Call Lovell for Capital Allowances


Lovell Consulting Capital Allowances 2015 Art Prize


LexisNexis Capital Allowances Webinar with John Lovell & Ronak Shah


Plant in Garden Centres: Claiming the Right Kind for Capital Allowances


Can an Accountant Claim the Capital Allowances without Specialist Support ?

New Picture (33)b

John Lovell Capital Allowances talk at Chartered Institute of Taxation Conference


Enterprise Zones & Capital Allowances


10 Key Qualities To Look For In A Capital Allowances Advisor


Capital Allowances within Private Member Clubs


Effective Dealing with HMRC for Capital Allowances

Taxation Feedback Article

Taxation Feedback: Capital Allowances


Capital Allowances within Restaurants


Capital Allowances within Nursing Homes

Little Book

Little Book of Big Capital Allowances Savings


Real Estate Investment Trusts: Get The REIT Advice on Capital Allowances


Wind Turbines and Capital Allowances

cont land

Contaminated Land – The Big Clean Up for Capital Allowances

New Picture (20)

Capital Allowances & Furnished Holiday Lets


Capital Allowances Hidden Gems within Hotels


Helpful Tips for Claiming Capital Allowances in Tax Returns


Why Do I Need A Capital Allowances Specialist?


Land Remediation Relief & Capital Allowances Q&A

Inspired Capital Allowances Savings_Page_1

Inspired Capital Allowances Savings


Private Rented Sector (PRS) & Capital Allowances: Key Planning Points


Drafting For Purchase Contracts And CPSE Capital Allowances Responses

The Great Hall, University of Reading

Lovell Consulting Capital Allowances Student Prize Winner 2015

George Osborne Summer Budget 2015

Summer Budget 2015: Property Tax Updates & Impact for Capital Allowances


The Benefits of Claiming Annual Investment Allowances


Lawyers Should Seek Specialist Capital Allowances Advice


The New Environment For Capital Allowances

Capital Allowances demolition costs

Capital Allowances – Demolition Costs

Capital Allowances - Asbestos Removal

Capital Allowances – Asbestos Removal

wooden-judges-gavel-1024x678 (2)

Capital Allowances Case Summary: Bowerswood House Retirement Home

wooden-judges-gavel-1024x678 (2)

Property Tax Case Summary: Terrace Hill (Berkeley) Ltd: Impact for Capital Allowances


Business Premises Renovation Allowance (BPRA) Case Summary: Senex Investments

Construction Expenditure image

Capital Allowances Savings for Construction Expenditure


Recent Capital Allowances Case Study

wooden-judges-gavel-1024x678 (2)

Capital Allowances Case Summary – Rogate Services


Lovell Consulting Capital Allowances Student Prize Winner

wooden-judges-gavel-1024x678 (2)

Capital Allowances Case Summary – LLPs and AIA

Kirsty and Mike 2

New Capital Allowances Team Members

See Saw 2-10 (2)

Lovell Consulting Capital Allowances 2014 Art Prize


Recent Lovell Consulting Press Coverage: Capital Allowances


April 2014 Capital Allowances Fixtures Rules


The Budget of 19 March 2014 Announced a Number of Capital Allowances Changes


Capital Allowances Case Update – The Granleys

Holiday Lets 2

Capital Allowances on Furnished Holiday Lets


Capital Allowances Case Update – Wetherspoon


The Budget of 23 March 2012 Announced a Number of Capital Allowances Changes