+44 (0) 20 7329 1300

Capital Allowances, Trustees and Tax Havens

Capital Allowances, Trustees and Tax Havens – Time to Act Now

Capital allowances are available when taxpayers incur expenditure on buying, building or refurbishing commercial property and the tax benefits can be significant.  It is a non contentious way of reducing a tax bill but in our experience is frequently overlooked.  Many property owners holding UK sited property offshore have not claimed allowances.  There is sometimes a mistaken view that they are not entitled to or a perception they can avoid any UK tax.  However, even if a UK property is held in say Panama or BVI, there is still an obligation to file a UK non resident landlord tax return.

Consequently many offshore non resident landlords and their trustees have historically missed opportunities to maximise the tax relief available to them from capital allowances.  It may also be that the availability of debt interest relief has sheltered all the income, or confusion and ignorance over the April 2014 capital allowances rules change, or inadequate tax due diligence in sale and purchase transactions – all leading to missed opportunities to claim.

Recent proposed changes to the reduction in debt interest and the repercussions of the 2014 fixtures legislation means it is more important than ever for trustees and non resident landlords to focus on capital allowances and maximise the tax relief available to them.

Failure to do so will result in an unnecessary and unwelcome overpayment of tax.

1872042_8c5756ec

Tax Havens

Tax havens such as Jersey, Guernsey or Luxembourg have many trusts and trustees who operate there to manage the financial affairs of their non resident landlord clients.  Non resident landlords who own property in the UK and receive an income stream are required to submit a non resident landlord tax return and pay tax on any profit generated from the rental.

Non resident landlords have been able to offset any taxable income against debt interest relief, and so may have been able to largely ignore the benefit of capital allowances.

Proposed Changes to Debt Interest Relief – Likely for Non Residents from April 2018

For UK companies (as announced on 16 March in the Budget 2016) a restriction will be introduced from 1 April 2017 for the tax relief they can claim in respect of loan interest deductions.  Historically there has been no limit to tax relief claimed in this way.

HMRC have published draft legislation on this and have asked for comments on the proposed restrictions.   These can be found under www.gov.uk/government/publications/draft-legislation-corporate-interest-restriction.

However, under the new rules, companies will only be able to claim for finance costs – capped at the higher of £2m and 30% of earnings.   Assuming all in interest costs of 5% this could apply to companies with total debt of above circa £40m.

The Government has also raised the possibility of extending this change to non-UK resident companies who receive taxable income from the UK.  The rationale is to deliver equal tax treatment.  Whilst this will mean non resident landlords will enjoy the benefit of lower tax rates (corporation tax to be reduced to 17% in 2020), it also means that potentially non resident landlords will be caught by the probable changes to debt interest relief too.  This is likely to apply some time on or after April 2018.

Consultation on these proposed changes is taking place now with any change being implemented after April 2018.

Debt funding has been integral to the non resident landlord real estate sector and the impact of such changes could be significant.  These recently proposed changes to the debt interest relief will significantly reduce a non resident landlord’s ability to reduce the tax due this way; thereby potentially leaving many non resident landlords with significant tax bills going forwards.

To compound the problem, the upturn in the economy with many landlords moving towards positive rent reviews means the improved rental streams will only increase the potential tax due.

Capital allowances have never been so important and by claiming full entitlement, non resident landlords will be able to limit the impact of these proposed changes.

QuarryHouseLeeds

Missed Opportunities to Claim – Confusion and Ignorance

In addition, many offshore trustees are generally not capital allowances specialists and therefore do not recognise the full potential of available allowances.

They process a significant volume of tax returns which can result in the acceptance of the ‘Modus Operandi’.  They often don’t have the time or inclination to challenge the information they are given or explore the possibility of improving on the capital allowances being offered during a sale and purchase transaction.  Both approaches are risky.

Case Study –Missed Opportunity Due to Lack of Due Diligence

A non resident landlord acquired a property in 2016.  To comply with the changes to fixtures legislation in 2014, they entered into a S198 CAA2001 tax election with the vendor to transfer the allowances across at £2.  The CPSE enquiries had incorrectly stated that the vendor had held the property as an investment.   However, a small level of research from the trustees would have revealed that the vendor was a developer who had built the property and held it as trading stock.

A S198 tax election was therefore irrelevant.  The non resident landlord was entitled to make an unrestricted claim on the full purchase price.

Conclusion

Lovell Consulting advises that one of the easiest ways to mitigate the changes is to make sure that historic and current capital allowances have been claimed.   Going forwards, the failure to claim allowances will be costly in tax terms.

It is therefore an excellent time to revisit capital allowances planning.

About Lovell Consulting

Lovell Consulting has a highly skilled and expert team, dual qualified in surveying and tax.  Frequently construction cost information can be unhelpful and will not provide the level of detail required for submitting a robust capital allowances claim.  Lovell Consulting has the expertise to identify the unusual items of qualifying plant and machinery as well as segregate the high level construction costs.

When buying or selling property, it is vital that the benefit of Capital Allowances are not lost.  To avoid any potential delay to transactions, it is important that Buyers and Sellers of commercial property have an accurate and useful exchange of information through the use of CPSE. It is recommended to use a specialist Capital Allowances firm such as Lovell Consulting to achieve a positive outcome.

Lovell Consulting purely specialises in Capital Allowances and has provided advice on Capital Allowances for thousands of commercial transactions throughout our 20 year history.

The team at Lovell Consulting can be reached on 020 7329 1300 for further guidance.

Back to News

OTHER NEWS

20170719_133055

Lovell Consulting Capital Allowances Student Prize Winner 2017

Lovell Coffee Seminar Sep, Oct and Nov 2017

New Capital Allowances CPD Seminar Dates

Cabot_Square,_Canary_Wharf_-_June_2008

Pension Funds and Capital Allowances Interactions

lexis

Lexis Nexis Webinar – Capital Allowances in 2017

Lovell Coffee Seminar May and June 2017

New Capital Allowances CPD Seminar Date & Speakers Announced

Kaca_film_40%

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

1966_Sunliner_caravan_(6262976143)

Employees Claiming Capital Allowances: Caravan Case Demonstrates Hurdles!

Midland_Hotel,_Morecambe,_Lancashire,_England-31Aug2010_(3)

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

British_Houses_of_Parliament

Corporation Tax Loss Relief & Interest Deductions: Capital Allowances

Bar

New 2017 Capital Allowances CPD Seminar Dates Announced

buildings-1245684_960_720

Interview: A Little Capital Allowances Knowledge Can Be Dangerous

3638890517_7161f4c331_z

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

new-picture-56

2016 Lovell Consulting Capital Allowances Art Prize Voting Begins

1

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

2276927_4f106630

Student Accommodation & Capital Allowances

blake-h-portrait

Lovell Consulting Capital Allowances Student Prize Winner 2016

pexels-photo

Capital Allowances within Offices

MBL Webinar

MBL Webinar – Capital Allowances for Property Surveyors

2414578731_82c451232d_b

Capital Allowances & Data Centres

taxjournal-logo

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

Odeon_Barnet,_High_Barnet,_EN5_(4497059063)

Claiming Capital Allowances and / or Repairs

york-united-kingdom-empty-street

Commercial Property Standard Enquiries: Capital Allowances

New Picture (54)

LexisNexis Webinar – Tax for General Practice & Capital Allowances

England1_144

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

New Picture (44)

LexisNexis Webinar – Commercial Property Law & Capital Allowances

Thumbs_up_bluefilter

New Capital Allowances Team Appointment – Glenn Ramos

New Picture (48)

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

Gherkin_stitch

Fundamental Changes to Interest Deductions & Impact for Capital Allowances

playground-99509_960_720 - Copy

Capital Allowances within Childcare Facilities & Schools

Royal_Coat_of_Arms_of_the_United_Kingdom_(HM_Government).svg

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

Thumbs_up_bluefilter

Capital Allowances Team Announcements

MamaMarseille

Better Call Lovell for Capital Allowances

0928aa_ee33b990a61e441d83d6b257a590d366

Lovell Consulting Capital Allowances 2015 Art Prize

Lexis

LexisNexis Capital Allowances Webinar with John Lovell & Ronak Shah

x-default

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

1280px-Serpentine_Gallery_Pavilion_5_(2732918169)

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

Albert_dock_at_night

Enterprise Zones & Capital Allowances

14228109324_186f38de00_o

Capital Allowances & Landlord Contributions to Tenant Fitting Out Works

wall-of-keys

10 Key Qualities To Look For In A Capital Allowances Advisor

aMaiFZY

Capital Allowances within Private Member Clubs

iStock_000005218304Small

Effective Dealing with HMRC for Capital Allowances

Taxation Feedback Article

Taxation Feedback: Capital Allowances

rooms+cover

Capital Allowances within Restaurants

Poole2-VTerraceC

Capital Allowances within Nursing Homes

Little Book

Little Book of Big Capital Allowances Savings

xglobal-REIT-ETF.jpg.pagespeed.ic.U54haEqpZd

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

Siemens-6MW-Wind-Turbine

Wind Turbines and Capital Allowances

cont land

Contaminated Land – The Big Clean Up for Capital Allowances

New Picture (20)

Capital Allowances & Furnished Holiday Lets

CT_Lobby_01-of5a411

Capital Allowances Hidden Gems within Hotels

tax_1815371c

Helpful Tips for Claiming Capital Allowances in Tax Returns

Tax-question_300_2

Why Do I Need A Capital Allowances Specialist?

seedling

Land Remediation Relief & Capital Allowances Q&A

Inspired Capital Allowances Savings_Page_1

Inspired Capital Allowances Savings

580_Image_homes_new_oldham

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

london-6

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

LN

Lawyers Should Seek Specialist Capital Allowances Advice

Lovell_Consulting_Groups22-1500w

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

OLYMPUS DIGITAL CAMERA

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

Construction Expenditure image

Capital Allowances Savings for Construction Expenditure

58767673

Recent Capital Allowances Case Study

wooden-judges-gavel-1024x678 (2)

Capital Allowances Case Summary – Rogate Services

crest(300x380)

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

EGA_030514_301.indd

Recent Lovell Consulting Press Coverage: Capital Allowances

Lovell_Consulting_Groups05

April 2014 Capital Allowances Fixtures Rules

budgetbox_1107228c

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

Lovell_Consulting_Groups22-1500w

Capital Allowances Case Update – The Granleys

Holiday Lets 2

Capital Allowances on Furnished Holiday Lets

wetherspoons-woking-01

Capital Allowances Case Update – Wetherspoon

budgetbox_1107228c

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