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Can Property Landlords Claim Any ‘Super’ Deduction?

The Budget back in March resulted in some good press for Rishi Sunak’s ‘Super Deduction’ whereby firms investing in new equipment in the two-year period up to 31 March 2023 receive a 130% deduction to get tax relief against profits.

Less well publicised was the fact that equipment leasing firms, and by extension commercial property landlords, were not generally eligible for this new relief as per the draft legislation that was published.

Thankfully, recent amendments to the Finance Bill making its way through Parliament have exempted landlords from the definition of ‘leasing’ which mean that there are opportunities for landlords to be able to claim up to 130% relief on new expenditure incurred in the two years up to 31 March 2023. We have focused on some scenarios below where this could result in significant claims.

‘Build to Rent’ Residential Schemes

These schemes have become increasingly prevalent in city centres in recent years arising from a lack of available stock for people looking for short term rental leases and the desire for investors to participate in decent yields on residential property. They normally comprise a large apartment block with individual self-contained residential units along with significant communal areas.

For schemes where the main contractor has been engaged after 3 March 2021 there may be scope for the landlord to claim 130% deductions on fixtures installed in communal areas. Examples could include CCTV, access control systems, fire alarms, carpeting and leisure facilities such as swimming pools, gyms etc.

For other more substantial communal area fixtures such as lifts, lighting, plant rooms etc. then there may be 100% or 50% allowances under the super deduction available rather than the standard 6% relief normally available for these types of fixtures. This is due to the fact that the Annual Investment Allowance that gives 100% relief on plant & machinery up to the first £1M of spend is still in place until 31 Dec 2021.

Multi-Let Commercial Schemes

Alongside the ‘build to rent’ residential schemes there has been a growth of ‘co-working’ office schemes where tenants take leases on individual offices within a building but have access to substantial co-working or communal spaces within the building.

There may be scope for landlords incurring expenditure on such developments in the two years to 31 March 2023 (where the main contract was signed post 3 March 2021) to claim 130% deductions on the same fixtures as outlined above for Build to Rent schemes and 100% / 50% for the more substantial M&E elements.

Commercial Landlord Contributions to Tenant Fit-Out & Landlord Fit-Out

Where a landlord makes a contribution to a tenant fit-out there may be scope for 130% allowances to be available to the landlord even where there is a full repairing lease in place. This is due to the legislation dealing with capital contributions, but close care will be needed when drafting any lease agreement with regards to how the contribution is defined and allocated to the tenant fit-out costs.

A standard landlord fit-out of a new build property, refurbishment or conversion is likely to have significant scope for the new 130% super deduction and the 100% / 50% reliefs available as well for projects commenced in the April 21 – March 2023 period.

If any if the scenarios above are relevant to your circumstances, feel free to arrange a no obligation chat with our Tax Director James Greenhalgh who can advise on how to structure transactions to take advantage of the new reliefs and undertake all work in connection with the claim procedure.

Disclaimer

The information was correct at time of publishing but may now be out of date.

Property
Posted by James Greenhalgh
4th June, 2021
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