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Changes to Super-Deduction Capital Allowances Legislation a boost for Landlords

HM Revenue & Customs (HMRC) has tabled an amendment to the Finance Bill 2021 Super-Deduction Capital Allowances and Special Rate allowance legislation to include landlords, allowing them to claim more generous tax relief on investments in plant and integral features such as water, heating and air conditioning systems.

The ‘Super Tax Deduction’ was a welcome announcement on Budget Day, designed to boost investment for expenditure incurred by businesses between 1 April 2021 and 31 March 2023. However, landlords were left out in the cold despite operating in one of the key sectors which requires heavy investment post-pandemic.

The Treasury has listened to the concerns of company landlords and has now made the amendments to the draft legislation to ensure that property lessors are not prohibited from claiming these tax incentives.

Landlords should now review their property refurbishment and improvement plans and carefully consider the timing of programmes

Who will benefit from the change in legislation?

From 1 April 2021 until 31 March 2023, companies who invest in qualifying plant and machinery assets will be entitled to either a 130% first year capital allowance (plant and machinery) or a 50% first year allowance for ‘integral assets’ that qualify for the ‘special rate’, such as electrical and lighting systems, lifts and air-conditioning.

An investment of £100,000 in plant and machinery meeting the Super-Deduction tests will generate tax relief of £24,700  in the year of expenditure and for expenditure of £100,000 on integral features, tax relief worth £9,500 will be available in the year of expenditure, with residual relief through capital allowances at a rate of 6% per annum.

The reliefs are only available to companies that are within Corporation Tax, private investors will not benefit from this tabled change. Expenditure must also be on ‘background’ assets. That is, expenditure which is expected to be installed in or on the site of a building which contribute to its functionality. Whilst this definition covers a wide range of assets, a significant number of these items will be ‘integral features’ rather than assets on which the Super Deduction will be available. Therefore, for some eligible lessors the relief available will purely be a timing difference.

The property sector has been hit hard over the last year and many companies need funds to help finance development on properties that are vacant or require upgrading to ensure that they are properly equipped for the post-pandemic, green economy.

Landlords should now review their property refurbishment and improvement plans and carefully consider the timing of programmes to ensure they maximise their ability to claim the tax reliefs.

Would you like to know more?

If you would like to discuss how this may impact your business, please get in touch with your usual Blick Rothenberg contact or Heather using the form below.

You can also visit our Property & Construction Hub for more insights.

Contact Heather