Super deduction extension for landlords

Landlords can now take advantage of the most enticing tax incentive for business investment that the British government has ever offered, but they must act quickly.

Any investments a business makes in ‘main rate plant and machinery’ will be eligible for a 130% capital allowance deduction for two years beginning April 1, 2021, under the super-deduction.

When the scheme was first announced in March 2021, property letting companies were excluded from the scheme, meaning only occupiers could claim but amendments set out in the Finance Bill, now given Royal Assent, means they are now eligible to apply for the tax break.

When will landlord be able to claim super-deduction

The allowance is only available on investments made on or after 1 April 2021 and before 1 April 2023.

The latest amendments were approved at the report stage of Finance Bill 2021 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 £1m (until 31 December 2021) on such expenditure, resulting in an effective 100% 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% super-deduction for main pool assets and maintain their AIA for special rate assets.’

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

‘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,’ said Grimster.

How can landlord benefit from super-deduction?

‘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.’

How can landlord qualify for super-deduction?

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.’