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Capitalising on allowances for enterprise zone property made clear by expert

KEY commercial property professionals on the South Bank have been given a greater insight into capital allowances.

Capitalising on allowances for enterprise zone property made clear by expert

The incentives form one of the bright orange carrots dangled on the Enterprise Zone stick by government keen to see development and economic growth, and Ian Major, senior associate with specialist consultancy business Stuart Rivers, has carved out a niche in ensuring they are maximised.

Working with the area’s leading independent chartered accountants, Forrester Boyd, he underlined the tax relief available and the difference the special status large parts of northern Lincolnshire benefits from, can offer.

Mr Major, a chartered surveyor who has been with the practice for 11 years, briefed members of the North East Lincolnshire Commercial Property Group.

He said: “Capital allowances have been around for 100 years in various forms, they are incentives for commercial property owners to keep investing in their businesses through the fabric of the building.

We analyse the fixed equipment in the building, through from heating, lighting and air conditioning, and a whole myriad of very small things that go to make up the capital allowance regime. 

“We represent all manner of commercial property owners across all sectors, and it is wide and varied.”

Having recently acted for a cold storage company in Grimsby, he described how it could build down to a furnished holiday let. 

“Anything classed as commercial property can benefit from tax relief, from 2,500 sq ft light industrial unit to a big factory or office block,” he said. “Our job is to get income tax and corporation tax reduced, and an enterprise zone is a very efficient way to accelerating tax relief.”

He said in more than a decade compiling the reports, he has filed between 500 and 600, with only 2 per cent ever queried by Her Majesty’s Revenue and Customs.

“We work on a full disclosure basis,” he said. “We produce very detailed reports on the simple principle that you throw as much as you can to them and there is less for them to argue against. The situation with capital allowances is it sits firmly with how the valuations are arrived at. Part of the work is HMRC mathematics, the rest is surveying and valuation techniques. They can never question the value, it is just an area of interpretations. The allowances are there to be captured, and the art, if it can be called that, is to capture the maximum possible for clients.”

In most cases allowances are triggered by purchase or any building expenditure – be it new or extension – and refurbishment.

He said a £1 million office may involve £250,000 to £300,000 of capital allowance. “For a corporation that’s £57,000 and a private individual or partnership that’s £135,000,” Mr Major said. “We are talking about a lot of money in tax relief and that is very beneficial,” he said.

Buildings create different levels, with – typically – hotels 15 to 40 per cent; offices 12 to 40 per cent; retail 3 to 25 per cent and industrial 5 to 25 per cent.

Mr Major said the list of inclusions is exhaustive, but a “basic rule is it has to be in for two years, it has to have a useful life, to be a useable asset in the building.”

When it comes to the return, the “bulk of the tax relief will come back in the first five to seven years, and is still exceptionally valuable to have,” he said.

Enterprise zones are different regimes, with 100 per cent first year allowance on everything claimable within the property.

“If you claim at the right time of the year you can expect all the tax relief on all the equipment in the building will be back in year one. That’s great and far more beneficial than taking 25 yeas to get that tax relief back,” he said. “What’s available in enterprise zones would normally take 16 years,” he added.

A learning from the first enterprise zone initiative – which somewhat scarred Scunthorpe – was the fact companies would stay as long as the money flowed, with the building included too, then “upped sticks and moved out when the old regime ran out”. “It was used and abused,” Mr Major said.

Out of an enterprise zone, a £1 million office building would attract £57,000 relief, with a first year saving of £6,840. In an enterprise zone it is £300,000, with a first year saving of £57,000, but only applies to new, unused or replacement plant.

“In a new business, when cashflow is an issue, 100 per cent tax relief is very, very positive for them,” he added.

Mr Major said an increasing amount of work was done by managing agents on behalf of landlords, and when it comes to sales it now forms part of negotiations, with a property where “they have not managed the capital allowances efficiently potentially devaluing the sale price”.

Making a pitch for the area, he said: “I would like to think that working with colleagues at Forrester Boyd, not just in North East Lincolnshire but the wider area, we could be viewed as part of the inward investment team to maximise value in future investments. We are very responsive and offer a whole range of technical advice.”

Buildings benefiting from grant aid are not outside the remit either, it merely dilutes the relief available.

Paul Gray, head of business development at Forrester Boyd, said: “We are very pleased to have an alliance with Stuart Rivers. Most of our partners tap in for information and knowledge, and it often leads to an introduction. I think the message is we are open for business enquiries to help people.”

Which enterprise zone offers what
STALLINGBOROUGH: 64 ha Enhanced capital allowances
HUMBER GATE: 21 ha Enhanced capital allowances
IMM-PORT KING'S ROAD: 21 ha Business rate discount
QUEEN'S ROAD: 10 ha Business rate discount
HOBSON WAY: 28 ha Business rate discount
MOODY LANE: 45 ha Enhanced capital allowances
PORT OF GRIMSBY: 11 ha Business rate discount

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