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Will the Super-Deduction U-Turn Benefit Property Landlords?

Let Property Campaign

Property landlords can now take advantage of the most attractive tax incentive for business investment ever offered by the British government, but they need to move fast, according to financial experts Old Mill.

Under the super-deduction, for two years from 1 April 2021 any investments a business makes in ‘main rate plant and machinery’ will qualify for a 130 per cent capital allowance deduction.

When the scheme was first announced in March 2021, property letting companies were excluded from the scheme, meaning only occupiers could claim.

But the Government approved amendments at the report stage of the 2021 Finance Bill so that property lettings companies will be eligible for the new allowances/

Stuart Grimster, head of property & construction at Old Mill, said: “It means enhanced allowances will be available where a company purchases or constructs a building to let out and fits it out with fixtures and other assets which contribute to the functionality of the building. Of course, such fixtures already qualified for capital allowances, and therefore a company can utilise their Annual Investment Allowance (AIA) of up to £1 million (until 31 December 2021) on such expenditure, resulting in an effective 100 per cent tax deduction in the year of purchase. However, following the amendments to the Bill, property landlords will now be able to take advantage of the 130 per cent super-deduction for main pool assets and maintain their AIA for special rate assets.”

Grimster says that the u-turn is hugely significant for landlords and the property and construction sector as a whole.

He added: “What this change means is that claimants can cut their tax bill by up to 25p for every £1 they invest, but in the first drafting of the Bill, landlords were not included. Landlords have been brought into the frame, and when you consider that under the new rules, a property landlord incurring £1m of qualifying expenditure can save almost a quarter of a million pounds on their corporate tax bill*, you can see why this change is so significant. Tax savings like this offer landlords a huge incentive to make additional investments and bring planned investments forward which will help stimulate much needed growth in the sector.”

But says Grimster, landlords will have to move fast to take advantage, because it is only available until April 2023.

He concludes: “To qualify, expenditure needs to be incurred – which means an unconditional obligation to pay has arisen – on or after 1 April 2021 but before 1 April 2023 on ‘new and unused’ plant and machinery, but the Chancellor has said that any contracts entered into before 3 March 2021, regardless of when the unconditional obligation arises, will not qualify for the new relief.”