If you spend £1m on a healthcare property, you could generate capital allowances of as much as £400,000.
These allowances are deducted from your profits before you pay tax and could reduce your overall tax bill by between £80,000- £180,000 depending on your structure and rate of tax.
How is this possible?
. It is also increasingly dangerous to ignore allowances when buying or selling property as significant changes were introduced in 2014 which mean they should be carefully considered before contracts are exchanged, rather than after the event
Capital allowances are a legitimate form of tax relief designed to encourage investment. They are particularly relevant to the healthcare sector as potential savings are relatively high compared to other sectors.
Allowances are available for all healthcare individuals and businesses that pay tax, but should not be ignored by non-taxpayers.
How do they work?
They are given for capital expenditure most commonly on fixed plant and machinery – in fact many are surprised at the wide range of assets and expenditure which qualify for allowances.
They allow you to deduct some, or all, of your capital expenditure from your profits before you pay tax.
Allowances are generated by capital expenditure on commercial property including: buying an old or a new property; building a new property; altering extending or refurbishing a property; or fitting out let property - all of which are common place in healthcare design and management.
In terms of healthcare management, allowances should be considered when managing healthcare assets, for example on acquisitions and disposals when capital allowances tax savings can be maximised in the interest of good estate management.
Options on disposal may include keeping allowances, or passing them to a buyer in return for a higher price.
In terms of healthcare management, allowances should be considered when managing healthcare assets, for example on acquisitions and disposals when capital allowances tax savings can be maximised in the interest of good estate management
Options on acquisitions may include obtaining all available allowances, even if you are non-taxpayer, as this may help with future disposals.
In terms of healthcare design, allowances are best considered at the outset by the design team. If they specify the right energy and water-saving plant and machinery, they can take advantage of first-year or enhanced capital allowances.
This may be particularly relevant where, for example, a care home is building up trade as they are given in the first year, rather than being written down over a period of time. They also reduce the carbon footprint and strengthen green credentials, once again in the interest of good estate management.
As capital allowances are relatively high in the healthcare sector, they increasingly form part of negotiations when buying or selling property. It is also increasingly dangerous to ignore allowances when buying or selling property as significant changes were introduced in 2014 which mean that, in most cases, they should be carefully considered before contracts are exchanged, rather than after the event.
It is possible to review historic expenditure including acquisitions and construction expenditure. In most cases it is never too late, so top tips include reviewing all property purchases, no matter how old; reviewing all construction expenditure; and keeping records of all expenditure incurred.
Another tip is to consider the availability of research and development allowances.
Capital allowances are, without a doubt, relevant to the healthcare sector and should form part of a comprehensive design or management remit
Once again many are surprised at the wide range of R&D activities which qualify – 100% allowances are available on bricks and mortar R&D expenditure.
So capital allowances are, without a doubt, relevant to the healthcare sector and should form part of a comprehensive design or management remit.
Early engagement with your accountant, tax adviser, and-or a specialist adviser should pay dividends.
Fees are very often contingent, or based on their results - legitimate tax savings.
