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Property Refurbishment/Alterations

Property refurbishments often offer taxpayers the greatest proportion of tax relief compared with new building developments or acquisitions. This is due to the following:
  • Revenue Expenditure
  • Capital Allowances Act (CAA) 2001 S25

Revenue Expenditure

Maintenance and repairs are normally regarded as examples of revenue expenditure. In such cases the whole of the expenditure can be deducted in the tax computation for the year that it is incurred. The effect is to relief 100% of the expenditure at the taxpayers marginal rate of tax.
It is important to note that there is a thin line and large volume of case law regarding the distinction between revenue and capital items. In general terms, the distinction is not founded upon the quantum of the expenditure, nor upon the size of the assets involved, rather the following key principles
- The durability of any new asset created
- Whether it is the whole or a merely a part of an asset which is being replaced
Revenue expenditure is not due for the cost of replacing an entire asset 'the entity principle', for example a whole building or in some instances readily identifiable parts. Also, revenue expenditure will not be allowed if there is a significant element of improvement to the asset (note: use of modern equivalents is normally allowed), for example the replacement of timber single glazed windows with modern aluminium framed double glazed windows. Moreover, just because an asset is shown as repair in a building contract does not necessarily mean that it will satisfy the test as a revenue expense for tax purposes.
A further consideration is that the owner must either have used the property before refurbishment or at least demonstrate that it could have been used despite the refurbishment works.
For the avoidance of doubt all repair/maintenance expenditure in a building contract should be itemised and priced separately.

Capital Allowances Act (CAA) 2001 S25

Certain elements of a building or structure are normally excluded by statute from qualifying as plant or machinery for capital allowances purposes. For example: floors, walls, ceilings, lift shafts, etc.
This section in the Capital Allowances Act specifically allows a taxpayer to claim capital expenditure on items that would not normally qualify and that are incidental to the installation of plant or machinery as a result of alterations to an existing building. For example, the installation of a lift shaft associated with a new lift in an existing building will qualify under this section.
For the avoidance of doubt all such associated expenditure in a building contract that involves alterations to an existing building should be itemised and priced separately.

Property Tax

Property Tax Incentives and Allowances can produce substantial savings to investors, developers and owners of property to mitigate the levels of tax paid on profits and / or reduce the payment of tax on construction projects.  Property Tax Allowances come in many forms, capital allowances, VAT, land remediation relief etc.  Claims are calculated with reference to the relevant legislation in conjunction with case law, however, it is a "valuation" exercise and Property Tax Incentives and Allowances are not an exact science.

Revenue Deductions

Relief gained by allocating expenditure to the most tax-advantageous profit and loss account.

Structured Finance

We can often help investors who cannot use tax allowances directly to gain substitute benefits such as low cost finance.

Taxation Allowances

Taxation Allowances are inherent in most commercial property expenditure with the most valuable capital allowance available from such investments being 'Machinery and Plant'. Depending upon the property type, there can also be opportunities to claim for 'Industrial Building'.
The allowances are not necessarily limited to pure construction costs or direct services installations, but can include structural and/or passive elements of a building as well as proportions of associated professional fees. Tax efficiency can also be built into design considerations at an early stage.
Claims for developments can provide substantial tax savings to property investors, developer investors, developers, and other non- claimants.

In order to benefit from tax allowances there needs to be a taxation liability that can shelter the relief, either initially or in the medium term
In some circumstances clients may not be in a financial position to make direct use of the tax relief and at the same time could well make use of low cost finance - be it as part of a capital contribution or maybe for an endowment fund for operating the facility well after physical completion.
This can create an opportunity for a financial structure whereby a corporate lessor will effectively acquire the tax shelter for either a sinking fund consideration or discounted rental stream. The subject is complex but nevertheless meaningful particularly when introduced to major construction expenditure.
Our company Capital within Our company Financial Services has exceptional experience in this field acting upon a series of key projects and clients throughout the UK. Our aim is to minimise the net finance costs and maximise benefits in order to achieve a significant saving on funding costs.

Value Added Tax (VAT)

The property sector is extremely high risk from VAT perspective. VAT Consultants can provide professional expert advice on all Property transactions. The VAT issues applying to businesses operating in property are very complex and VAT Consultants can assess all types of transactions. Vat Consultants can minimise the risk of exposure to avoidable VAT Costs and VAT Consultants should be employed at a very early stage to establish the project needs.

Funders Representative

We provide an expert assessment of development project risks and advice on deficiency resolution for funders, owner occupiers, developers and tenants; encompassing initial appraisals, ongoing monitoring, or both.

Initial Appraisal
With specific services covering:
  • Budget costings, analysis of risks and proposals for their management.
  • Advice on project design and construction proposals.
  • Review of the life cycle maintenance plan, procurement strategy, and third party appointments.
  • Comment on site constraints e.g. geo-technical, environmental and infrastructure issues.
  • Review of proposals, including specifications and development control procedures.
  • Advice on Planning and Building Regulations, funding development and leasing agreements, warranties and insurances.

Ongoing Monitoring
With monthly progress reports, covering:
  • Review of expenditure, projected costs and cash flows.
  • Reviewing progress against plan, and reporting on possible delays.
  • Updates on Planning and Statutory Consents.
  • Monitoring performance of developers, consultants and contractors.
  • Assessing any proposed additional costs and their likely value and impact.
  • Assessing likelihood of delays, proposals to eradicate or mitigate them, and costs arising.
  • Advising on the draw down of funds for work completed, on third party fees, and marketing, letting and development costs.

Due Diligence

When organisations are purchasing, leasing or financing property acquisitions they follow a due diligence process to provide an audit trail to protect their investment. One specialised area of the due diligence process is concerned with checking the physical condition of the property to be acquired. Our company has considerable experience in due diligence surveys on an International scale, in the following key sectors: Commercial Sector Retail Sector Industrial Sector and Leisure Sector The report format, programme and reporting procedures are agreed with the client at the commencement. Our company often include building fabric and services to an agreed depth, an environmental desktop or walk around survey and where appropriate a follow up type 2 asbestos survey. To remove any doubt, Our company undertake additional investigations of defects by opening up the structure or providing high level access. The due diligence report generally includes a valuation for reinstatement purposes and an executive report to aid quick and easy interpretation of results. Defects and liabilities identified in due diligence surveys are generally costed. Our company react quickly to instructions and work with discretion and confidentiality.

Funder's Representative

Project Auditing: Understanding the risks associated with development projects requires a considerable investment in time and resources and is a pre-requisite to a decision to purchase or fund. We provide a clear and concise independent assessment of project risks including costs, time and quality, plus practical advice on resolving deficiencies. Our project auditing service is tailored to individual client requirements and encompasses any construction related activity. The service may encompass either or both initial appraisals and ongoing monitoring. Initial Appraisal: Our initial appraisal reviews the project and the processes in place. Services may also include analysis, examination, advice and comments. Monthly Reports: During construction we provide a comprehensive reporting service concerning the project progress, by using reviews, updates and overviews. As part of our service we also recommend on the drawdown of funds against the value of work completed. We also monitor and report on other costs such as professional fees, legal fees, marketing, letting and development costs.

Lender's Representative

Our company monitors and reports to the lenders on the progress and performance against the project budget during construction. Our company also checks and certifies the construction progress payments and checks that funds drawn from the lenders are correctly paid for by the developers.