What Are Embedded Capital Allowances?
Embedded capital allowances represent one of the most valuable yet frequently overlooked tax reliefs available to commercial property owners in the UK. When you purchase or invest in a commercial property, significant portions of the building's value are attributable to qualifying fixtures, fittings, and integral features that are eligible for accelerated tax relief through capital allowances.
Unlike the basic 3% Structures and Buildings Allowance available on the building itself, embedded capital allowances allow you to claim relief at rates of 6% to 18% annually (or even 100% through Annual Investment Allowance) on items such as electrical systems, heating and cooling installations, plumbing, fire safety equipment, lifts, and numerous other qualifying components.
At SCG Tax Limited, we specialize in identifying and claiming embedded capital allowances for commercial property owners across the United Kingdom. Our detailed cost segregation analysis examines your property to identify every qualifying item, substantiate valuations, and prepare robust claims that maximize your tax relief while ensuring full HMRC compliance.
Typical embedded capital allowances claims range from 20% to 40% of the total property purchase price, generating substantial tax relief for property owners.
Claims can be made retrospectively for properties purchased in previous years, subject to specific conditions and election requirements.
Our service covers all commercial property types including offices, retail premises, industrial units, hotels, restaurants, and healthcare facilities.
How Cost Segregation Identifies Unclaimed Tax Relief
The Cost Segregation Process
Cost segregation is a detailed analysis that separates property expenditure into different categories for tax purposes. Rather than treating the entire property as a single asset qualifying only for minimal tax relief, cost segregation identifies specific components that qualify for enhanced capital allowances.
Our chartered surveyors and tax specialists conduct comprehensive property assessments examining construction specifications, mechanical and electrical plans, and actual installations to allocate costs appropriately between:
- Main Rate Pool Assets (18% WDA): General plant and machinery, fixtures, and moveable equipment
- Special Rate Pool Assets (6% WDA): Integral features including electrical, heating, cooling, water, and lift systems
- Annual Investment Allowance (100% relief): Qualifying expenditure up to £1 million can receive immediate full tax relief
- Structures and Buildings (3% SBA): The remaining building structure qualifying only for basic allowance
Examples of Eligible Assets for Embedded Capital Allowances
Integral Features
- Electrical installations, power distribution, and lighting systems
- Heating, ventilation, and air conditioning (HVAC) systems
- Hot and cold water systems, plumbing, and drainage
- Lifts, escalators, and moving walkways
- External solar shading and thermal insulation
Fit-Outs and Fixtures
- Office fit-out including partitions, suspended ceilings, and flooring
- Kitchen equipment and extraction systems
- Bathroom fixtures, sanitaryware, and associated services
- Retail shopfitting, display units, and counters
- Carpets, curtains, and soft furnishings (in certain circumstances)
Safety and Security
- Fire detection, alarm, and suppression systems
- Security systems, CCTV, and access control equipment
- Emergency lighting and signage systems
- Intruder alarm systems and monitoring equipment
Land Remediation and Improvements
- Site preparation and groundworks on contaminated land
- External lighting, signage, and communications equipment
- Car park surfaces, line marking, and barriers
- Landscaping with functionality (not purely aesthetic)
Client Savings Examples
Case Study: Office Building Purchase
Property Details: Modern office building purchased for £3,000,000
Embedded Capital Allowances Identified: £900,000 (30% of purchase price)
Breakdown of Qualifying Assets:
- Electrical systems and lighting:£225,000
- HVAC systems:£270,000
- Plumbing and water systems:£135,000
- Fire and security systems:£120,000
- Lifts:£105,000
- Office fit-out and fixtures:£45,000
Tax Relief in Year One:
Utilizing Annual Investment Allowance: £900,000 × 100% = £900,000 deduction
Corporation Tax Saving:
£900,000 × 19% = £171,000 tax saved in year one
Without embedded capital allowances, only 3% structures and buildings allowance would be available, providing tax relief of just £17,100 (3% of £3m × 19%) in year one.
Additional Benefit: Cash Flow Impact
The £171,000 corporation tax saving represents a significant cash flow benefit that can be reinvested in the business, used to service debt, or distributed to shareholders. Over the life of the assets, embedded capital allowances accelerate tax relief that would otherwise be claimed over many decades at the much lower 3% rate.
Frequently Asked Questions
Who can claim embedded capital allowances?
Any business or individual owning commercial property in the UK can potentially claim embedded capital allowances, provided they incurred qualifying expenditure on fixtures and fittings. This includes property purchased, constructed, or renovated. Landlords, property investors, and businesses occupying their own premises may all be eligible.
Can I claim for properties purchased several years ago?
Yes, retrospective claims are possible under certain conditions. If qualifying expenditure was incurred but not claimed, you may be able to make a claim by amending previous tax returns or making elections. The specific rules depend on when the property was acquired and whether fixtures elections were properly made by previous owners. We advise on the optimal approach for your circumstances.
How much does a capital allowances claim cost?
Our fees are typically structured on a success basis or fixed fee depending on property complexity and value. We provide transparent quotes before commencing work. Given the substantial tax savings generated (often £50,000 to £500,000+ depending on property value), the cost of professional advice typically represents excellent value and pays for itself many times over.
What documentation is needed for a claim?
We require purchase documentation including contracts, completion statements, and any available property surveys or specifications. Where detailed costings are unavailable, we can conduct site surveys and use industry-standard cost models to substantiate valuations. HMRC requires claims to be supported by reasonable basis and methodology, which we ensure through comprehensive documentation.
What types of commercial properties qualify?
All types of commercial property can potentially qualify including offices, retail premises, industrial units, warehouses, hotels, restaurants, healthcare facilities, care homes, leisure facilities, and mixed-use developments. The key requirement is that the property is used for business purposes and contains qualifying fixtures and integral features.
Claim Your Embedded Capital Allowances Correctly
We serve businesses across all of London and every region in the UK. Whether you own one commercial property or a substantial portfolio, our embedded capital allowances specialists can identify qualifying expenditure and maximize your tax relief.
Do not miss out on valuable tax relief that is rightfully yours. Contact us today for a no-obligation assessment of your commercial property.