Are you availing of tax deduction on your property?

Many clients are not availing of their entitlements to a tax deduction on the purchase or construction of a property purchased personally or through a company.

When capital expenditure is incurred on constructing, refurbishing or fitting out a property, there can be substantial tax savings available on the cost of particular installations known as plant and machinery.  This category of expenditure covers many items including buildings services, installations of heating and ventilation, hot and cold water, parts of the electrical systems and other mechanical systems.  It also includes a wide range of items defined as plant under tax law and accepted practice.

Capital allowances reduce the amount of tax payable on profits and can also provide rebates on tax already paid in previous years.  A valuable cash flow benefit can be obtained through a claim for allowances.

Many clients do not avail of these tax deductions as the original purchase/construction documentation is not detailed in the current format to claim tax relief.

Key Points

• Allowances reduce the amount of tax payable on profits.
• Tax rebates can be claimed on tax paid over previous years.
• Allowances are used over an 8 year period at 12.5% per annum straight line basis.
• Ability to backdate claim over last 4 years provides rebate potential if tax has been paid in those prior years.
• Best opportunity to maximise relief is historic expenditure where a 4 year rebate can be made with a further reduction in tax over the following 4 years.
• Cash benefit of allowances depends on tax rate paid by client.  It is greater with higher rate income tax payers and lower with 12.5% corporation tax payers.
• Relief is available on property construction as well as acquisitions.

Property Types

Any commercial building provides opportunity to identify allowances and the potential tax saving will depend on the level of machinery and plant within the building.  A higher specification property will generate a higher value of allowances.

Claim Preparation

A professional claim for allowances requires a combination of skills including a technical understanding of buildings and a detailed knowledge of the tax legislation governing capital allowances.

Preparation of a claim involves due diligence enquiries followed by a survey of the property and a detailed analysis of costs incurred on the project.  We then produce a report to a Revenue approved format to enable the value of allowances to be incorporated in the tax computation or claim for rebate of tax overpaid.

Brian Dignam is Partner - OSK Audit.