Claiming Capital Allowances in 2024: What Landlords and Businesses Need to Know

For landlords, property developers, and business owners, making significant investments in properties or business equipment often comes with the opportunity to claim capital allowances. These allowances can help reduce your taxable profits by allowing you to deduct the cost of qualifying capital expenditure, such as plant and machinery, from your business income.

As we move into 2024, there are some key points you need to know to ensure you are maximizing your tax savings through capital allowances. This guide will walk you through what qualifies for capital allowances, how the system works, and the latest updates for the year ahead.

What Are Capital Allowances?

Capital allowances are a type of tax relief that allows businesses and landlords to offset the cost of certain capital expenditures, such as equipment, vehicles, and machinery, against their taxable income. Instead of deducting these costs as an expense in the year they were incurred, capital allowances spread the deduction over several years, depending on the type of asset and the rate of allowance.

In 2024, claiming capital allowances is still one of the most effective ways to manage tax liabilities for those investing in property improvements or purchasing assets for their business operations.

What Qualifies for Capital Allowances?

There are several categories of capital expenditure that qualify for capital allowances. Understanding these categories is essential for ensuring that you claim all the relief available to you.

1. Plant and Machinery

   • This includes a wide range of items that are essential to running your business or managing your rental properties, such as:
     • Office equipment (e.g., computers, printers)
     • Furniture and fixtures (e.g., desks, chairs, shelving)
     • Tools and machinery used for business purposes (e.g., industrial equipment, kitchen appliances in rental properties)
     • Vehicles (e.g., vans, trucks) used for business.
   • The Annual Investment Allowance (AIA) lets you claim 100% of the cost of qualifying plant and machinery in the year of purchase, up to a certain limit, which is £1 million for the 2024/25 tax year.

2. Integral Features and Building Fixtures

   • Certain fixtures that are part of the building can also qualify for capital allowances, especially when they serve an integral role in the functioning of the building. These include:
     • Air conditioning and heating systems
     • Electrical systems, wiring, and lighting
     • Plumbing systems and water treatment facilities
   • These are typically classified under Special Rate Pool Allowances, which are written down at 6% per year, but can be claimed under the AIA for faster relief.

3. Cars

   • While cars used for business purposes qualify for capital allowances, the amount of relief depends on the vehicle’s CO2 emissions. Vehicles with lower emissions are eligible for higher allowances.
   • For example, cars with CO2 emissions below 50g/km can be eligible for 100% first-year allowances under the Electric Vehicle Relief, making them a highly tax-efficient choice for businesses.

4. Energy-Efficient and Environmentally Friendly Expenditures

   • The government continues to incentivize investments in energy-efficient technology and renewable energy.
   • Businesses that invest in energy-saving equipment (such as solar panels, wind turbines, or efficient heating systems) can often claim Enhanced Capital Allowances (ECA), which allow 100% of the cost to be deducted in the first year.

5. Structures and Buildings Allowance (SBA)

   • Introduced in 2018, the Structures and Buildings Allowance allows businesses to claim 3% relief annually on the costs of constructing or renovating commercial buildings or structures.
   • Unlike plant and machinery, the relief is spread over several years, but it’s a valuable tool for landlords and developers who invest in new construction or significant structural improvements.

Recent Updates and Changes for 2024

Several recent updates and changes in the capital allowances regime will impact businesses and landlords in 2024:

1. Full Expensing for Businesses
   • From April 2023, a new policy of full expensing allows companies to claim 100% first-year capital allowances on the purchase of plant and machinery, effectively replacing the previous super-deduction. This policy will continue in 2024, offering significant upfront tax relief for those investing in their business.
   • Full expensing applies to new, not second-hand, plant and machinery, so it’s crucial to ensure that investments meet these criteria.
2. Changes in Capital Gains Tax Treatment
   • While capital allowances generally relate to income tax and corporation tax, it’s worth noting that the abolition of Multiple Dwellings Relief (MDR) and reductions in Capital Gains Tax (CGT) allowances could indirectly affect your tax planning. Landlords and developers may need to be more strategic about how they handle property-related expenses in light of these changes.
3. AIA Limit Stabilized at £1 Million
   • The Annual Investment Allowance (AIA), which allows businesses to deduct 100% of qualifying capital expenditure up to a certain limit in the first year, has been permanently set at £1 million per year, providing long-term certainty for business planning. This stability allows landlords and businesses to confidently plan larger purchases without fear of missing out on upfront tax relief.

Maximizing Tax Savings Through Capital Allowances

To make the most of capital allowances and ensure you’re claiming all available tax reliefs, follow these practical steps:

1. Plan Your Investments Strategically

• If you’re planning large-scale investments in plant, machinery, or property improvements, consider spreading these costs across multiple tax years to fully utilize the AIA and avoid exceeding the £1 million cap in a single year.
• Take advantage of the Structures and Buildings Allowance (SBA) for large-scale construction or renovation projects that may not qualify for the AIA.

2. Maintain Accurate Records

• To claim capital allowances, it’s essential to keep accurate records of all qualifying expenditures. Ensure that all receipts, invoices, and contracts are well-documented and that the nature of the asset is clearly identifiable.
• This is particularly important for complex expenditures like building fixtures or integral features, where it may not always be immediately clear whether the expenditure qualifies.

3. Consider Environmentally Friendly Investments

• With tax incentives available for environmentally friendly equipment, such as solar panels and electric vehicles, investing in energy-efficient technology can save on both running costs and taxes. The Electric Vehicle Relief and Enhanced Capital Allowances (ECA) for energy-efficient assets are particularly advantageous in 2024.

4. Consult a Tax Advisor

• Navigating the capital allowances system can be complex, especially for landlords or developers who have significant and varied investments. Working with a tax advisor can ensure that you’re maximizing your claims and keeping up to date with the latest reliefs and changes in the tax landscape.

Conclusion: Capital Allowances Offer Valuable Tax Relief

For landlords, developers, and businesses investing in equipment or property improvements, capital allowances represent an essential tool for reducing tax liabilities. Whether you’re purchasing new machinery, upgrading integral building fixtures, or making energy-efficient investments, capital allowances allow you to offset these costs against your taxable income.

As you plan for 2024 and beyond, understanding the types of expenditures that qualify for capital allowances and how to structure your investments will help you maximize your tax savings. If you’re unsure about how to proceed, Merranti Accounting is here to guide you through the process and help you make the most of available reliefs.