Capital allowances - don't ignore them!

Are you missing a SIPP property trick? When it comes to capital allowances, it is worth making sure you are seeing the whole picture.

Press sources estimate that there are around £96 billion of unclaimed capital allowances in the UK. You may be able to help your clients get some of that back.

"By inserting clauses into sale and purchase contracts, it is possible for pension schemes like SIPPs to secure these rights to pass on to future owners."

Offsetting costs

Capital allowances enable the owner of a property to offset some of the costs of ownership against the tax charged on the rental income. The most visible part of the capital allowances picture is the position of pension schemes. As they do not pay any tax on the rental income they are unable to take advantage of capital allowances. The thing is, that’s not the whole picture.

Passing benefits to the next property owner

What is less understood is that the pension scheme is still able to pass this benefit on to the next owner of the property. This may have a positive effect on the eventual sale price and marketability of the property.  In order to protect any capital allowances for future owners there are a number of steps that will need to be carried out prior to the purchase and when the purchase completes. By inserting clauses into sale and purchase contracts, it is possible for pension schemes like SIPPs to secure these rights to pass on to future owners. 

Writing off expenditure

Capital allowances enable a property owner to write off expenditure on specific plant and machinery (things like lifts or air-conditioning units, for example), which helps reduce the tax paid on income from the property. They are written down annually by a fixed percentage so tend to be more valuable in newer builds but never fully disappear. Newer builds also tend to have more of the fixtures that attract capital allowances.

So, when considering a SIPP purchase of a property that benefits from capital allowances, it is worth taking them into consideration. While the pension schemes themselves cannot benefit from capital allowances, you could help your client to benefit indirectly by protecting these for the next owner.