Poorly-advised businesses are missing out on government-backed tax relief relating to the life cycle of commercial and certain residential properties.
Alun Oliver, the managing director of property tax specialist E3 Consulting, warned that too many firms are under-claiming their capital allowances.
These allow you to claim tax relief at various stages of a property’s life, from purchase and build through to refurbishment, granting new leases, repairs and sale.
Healthcheck reviews by Southampton-based E3 Consulting reveal that up to 85% of cases fell far short of the figure they were entitled to from HMRC, with just 10-12% correct.
Costly tax consequences
Alun explained to the near 30-strong audience at the firm’s latest property taxation update: “Tax-payers who don’t seek professional advice for capital allowances should be aware that if they are not properly agreeing the position at the time of purchase the tax consequences of the New Fixtures Rules could be very costly; resulting potentially in no tax savings.”
He added: “We see lots of clients (and their solicitors, surveyors and accountants) that don’t fully appreciate the consequences of the CPSE (Commercial Property Standard Enquiries) answers – often denying tax savings – if not challenged or clarified.
“A lot of tax-payers don’t know how the rules work and are not claiming their capital allowances, either through ignorance or poor advice.”
Furthermore, the CPSE now requests the name of the capital allowances adviser for each party (clause 32.10), Alun also suggested this was an indication of the complexity of the tax legislation and requires specialist input to truly optimise the position.
Examples of where E3 Consulting has helped clients include a GP surgery in South Wales, with a tax relief of £71,250 on the £310,000 construction of the purpose-built facility.
A supermarket shell build in Staffordshire, excluding the store fit-out, qualified for tax savings in excess of £97,000 on the £4.4m construction costs.
Contentious claims
Capital allowances claims are becoming more contentious these days, the seminar heard.
Award-winning E3 Consulting provided litigation support to a regional law firm in the North West that was defending a small regional firm accused of negligent advice on capital allowances relating to a client’s property investment.
Alun provided expert opinion, analysed the circumstances of the situation and qualified the cost of lost tax relief missed, resulting in an out-of-court settlement and with the damages agreed at a significantly reduced level.
He said: “We are increasingly being brought in by solicitors as part of the conveyancing due diligence before a sale or purchase.”
In another disputed tax claim on a residential property renovation in North Wales, a client received much higher tax relief of £200,425 – the original claim of £90,000 having been challenged by HMRC.
“Following 2.5 years of protracted negotiations between the client’s accountants and HMRC, when the client was about to concede and walk away with nil as repairs, E3 Consulting was appointed and completed detailed claims reports within a few weeks,” Alun said.
Land remediation tax relief
Attendees, including developers, builders, accountants, lawyers, architects and insolvency practitioners, were also given examples of land remediation tax relief through E3 Consulting.
A medical facility in the Midlands, following a £17.6m redevelopment of a former scrap yard, gained more than £200,000 in tax savings following the removal of contaminated soil, asbestos and invasive Japanese Knotweed.
The seminar also shone the spotlight on the “complex” and “poorly understood” Community Infrastructure Levy – CIL for short.
This is calculated on the total floor space of new development and particularly affects residential property, including home owners who build extensions in their homes as well as larger developments, such as hotels, residential, retail and student accommodation.
Alun said: “I’ve had house owners in tears on the phone to me – they project manage their new extension or home but had not realised CIL applied, or that they could have had an exemption under the self-build exemptions available – but for these to be granted it has to be agreed with the Council before works commenced. A costly mistake.”
Poorly misunderstood
According to figures provided by E3 Consulting, Southampton’s maximum CIL rate per square metre is £70. In the New Forest it is £80 per square metre and on the Isle of Purbeck, in south Dorset, it is £180 per square metre.
CIL savings by the firm, which has eight staff and has recently celebrated its 15th anniversary year, have included £110,000 for a self-build house at Sandbanks, Poole; the initial CIL assessment was the same amount before E3 Consulting obtained a self build exemption.
A similar story happened with a self-build extension in Oxford, costing £400-500,000, where the initial CIL assessment of £31,400 was reduced to nil.
In Brent, London, an in-fill house costing £350,000 to build had its CIL reduced to £1,170 from the original assessment of £26,700 – a saving of £25,530 after the qualifying use was documented, overturning the council’s initial stance.
Alun said: “CIL is poorly misunderstood and spans different disciplines – surveying, design, planning, finance, tax and law. Getting timely advice, before works starts on site, is vital.”
The property taxation update was held at the Concorde Club, Stoneham Lane, Eastleigh.
A finalist in the RICS Matrics Young Surveyor of the Year 2018, E3 Consulting’s property tax surveyor Todd Arnison also spoke about 100% enhanced capital allowances tax relief on energy and water efficient assets – helping to ‘green’ buildings and improve EPC ratings.
TAX EXPERTISE: Property tax specialist E3 Consulting, a DCCI member, held an insights seminar for developers, builders, accountants, lawyers, architects and insolvency practitioners at the Concorde Club, Eastleigh, near Southampton. Pictured from left, front row, are property tax surveyor Todd Arnison, director Nicky Oliver and managing director Alun Oliver. Back row from left, business research analyst Ed Oxlade, marketing and HR executive Zoe Toseland and administrator, Darren Thorn.