Capital allowance - Thom Tax

the Importance of Capital Allowance in Your Commercial Property Investment

When thinking of investing in a commercial property, knowledge about Capital Allowance can make a significant difference in your tax benefits. A company’s Embedded Capital Allowance must be carefully computed by summing up all eligible expenditures and deducting any incurred borrowing costs. This calculation is vital in enhancing and maintaining the value of your commercial property investment and can result in substantial savings on income taxes in the long run.

  • What are Embedded Capital Allowances and how do they benefit a company investing in commercial property?
    Embedded Capital Allowances are tax benefits related to specific in-built features of a commercial property (like toilets or air conditioning). They benefit companies by ultimately saving on income taxes by retrieving parts of their investment.
  • What types of commercial properties are eligible for a capital allowance claim?
    All types of commercial properties – including offices, retail stores, pubs, restaurants, holiday lets, factories, warehouses, and surgeries – are eligible for capital allowance claims, allowing these businesses to claim back expenses from their investment.


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A company must calculate the Embedded Capital Allowance amount by adding up all eligible expenditure and then subtracting out any borrowing costs that have been incurred through the increased borrowings for an investment in commercial property (or from other related properties).

Recovering Embedded Capital Allowances as a tax benefit is vital for any company seeking to develop, increase and maintain the value of their commercial property investment because it saves on income taxes in the long run.

A successful claim can generate a refund that can be used for later taxation credit or offset against future liabilities; this is why it pays to know your Embedded Capital Allowance rights before you start investing in UK commercial properties.

In order to make sure Embedded Capital Allowances are reclaimed appropriately all companies must calculate what percentage they have been able with this process: Firstly add up all eligible expenditure then deduct borrowing costs from other related expenses incurred through increased borrowings.

We’ll talk about how Capital Allowance Tax works and what it entails further down in the post…

What type of commercial property can you claim?

The the good news is all property investors, owners or companies that have ownership, can take advantage of capital allowances, but there are some commercial & residential property that produce greater tax refunds.An example capital allowance claim can be made for the following properties: What Qualifies As Commercial Real Estate?

  • Offices and Office Space
  • Pubs & Restaurants
  • Retail stores
  • Holiday lets
  • Factory & Industrial Units
  • Care Homes
  • Warehouses
  • Surgeries
  • Hotels

What are Embedded Capital Allowances?

Before we look at Embedded Capital it might be good to get an understanding of Capital Allowances. The Capital Allowances tax is a tax relief that can that can be set against business profits. They form part of an annual claim for tax purposes in relation to capital items of Plant & Machinery and Fixtures & Fittings.

Property embedded capital allowances are items of Plant & Machinery that also qualify for Capital Allowances but might be considered to be part of the building; for example toilets, baths, sinks, air conditioning. A good way of thinking about about is if you turn your commercial property upside down anything that does fall out can be claimed for.

What are the benefits of making a claim?

Aside from Embedded Capital Allowance relief, Embedded capital allowance claims can also result in:

  • A reduction or deferral of available losses to be carried forward under the U.K.’s trading loss regime
  • An increase in a company’s balance sheet net property value (NPV) and/or equity value which may increase its market valuation

How is the Tax Benefit Claimed

Most successful claim generates and a tax refund and this can be used for a taxation credit which can be used against tax liabilities in the coming years.

What is Real property

In English common law, real property, real estate, realty, or immovable property is land which is the property of some person and all structures integrated with or affixed to the land, including crops, buildings, machinery, wells, dams, ponds, mines, canals, and roads, among other things.

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