Business owners who own commercial properties are likely to have considerable capital allowances related to the property that they could claim to reduce their tax liabilities, but many are unaware of their existence. These capital allowances are available on what are referred to as Property Embedded Fixtures and Features (PEFFs).
So what are PEFFs? PEFFs are integral fixtures and fittings which are generally included within the price that you paid for the purchase, extension or improvement to the commercial property. They include, but are not limited to, items such as central heating systems, telephone and electrical sockets, air conditioning units, fire alarms and CCTV. The list of integral features on which capital allowances can be claimed is quite extensive and, because they are wrapped up in the total purchase price of your building, they are often quite difficult to quantify and value.
You may feel confident that your accountant, acting in your best interest, will have claimed all the capital allowances that you are entitled to, but, many accountants are either unaware of the availability of these capital allowances or, more commonly, are unable to quantify them. Irrespective of whether you are a DEB accountancy client or not, we have the means to unlock this valuable resource for you and the amounts involved are often very significant. For example, we have just identified in excess of £200,000 of PEFFs for an office building. The capital allowances associated with these PEFFs could save up to £80,000 for a higher rate tax payer so are well worth taking advantage of.
New rules were introduced in April 2014 which could result in these valuable allowances being lost if they are not identified and quantified prior to the sale of your building, so there is no better time to act than now. If you think we could be of assistance in helping you to identify these valuable tax benefits on your business premises please get in touch with us for a free meeting to discuss your situation. We would be happy to hear from you.
Investing lump sums into pensions has historically represented a means by which business owners could seek to reduce their tax liabilities. The popularity of this practise has, in recent times, been eroded by a combination of the low returns that poor performing funds have achieved, the high charges imposed by pension companies, low annuity rates at maturity and the attraction of property as a so-called “alternative pension” investment. In recent years, the fall in house prices and the difficulty in obtaining funding for buy-to-let properties has reduced the attraction of this latter option to an extent, but what of pensions themselves?
The principle problem with pensions historically has been the imperative to buy annuities, even though this could be mitigated to a degree by various draw-down options that have been available. In recent times annuity rates have been falling as a result of low interest rates and increasing life expectancies and consequently many people have considered purchasing an annuity to represent a very poor investment. This lack of appeal is further magnified if the person taking the annuity feels they may die within a short time period of purchasing it.
The Government has been long aware of the inherent problems relating to annuities, but the fear that people will blow their pension funds and become a burden on the State has, until now, made them reluctant to make any significant changes. The changes that were announced in the 2014 Budget have therefore come as somewhat of a revelation.
Whilst it is inevitable that a minority of people will foolishly fritter away their pension funds, there now appears to be an acceptance that the sensible majority, having carefully accumulated their funds over their working lives, will not. This has prompted the present Government to remove the compulsion to invest in an annuity and instead allow people to take the whole of their pension funds once the age of 55 is attained. The proposals would allow 25% of the pension fund to be taken as a tax free sum with the balance being subject to tax at the individual’s marginal tax rate, leaving them free to invest the net amount in any way they deem fit.
The opportunities for using pensions as a means of reducing tax liabilities will significantly increase if the proposals achieve Royal Assent. If the pension investment achieves 20% tax relief as a minimum when the contribution is made, and only 75% of the amount extracted is taxed at a similar rate this would potentially offer an attractive profit extraction strategy. Needless to say, this will need to be carefully planned.
We must wait to see whether the proposals as they stand make it into the Finance Act later this year but, assuming they do, they could significantly increase the opportunities open to business owner managers in the future.