Capital Allowances and SDLT Recovery: How Property Owners Reclaim Tax Already Paid

What capital allowances are

Capital allowances are a form of tax relief that allows businesses to deduct the cost of certain capital expenditure — assets used in the business — against their taxable profits. Unlike revenue expenditure which is deducted in the year it is incurred, capital expenditure must be claimed through the capital allowances system, which spreads the tax relief over time or, in some cases, allows immediate full deduction through the Annual Investment Allowance.

For property owners and investors, the most significant opportunity is in the capital allowances available on fixtures and fittings embedded in commercial property — items that are part of the building but qualify for plant and machinery capital allowances. These are frequently missed at the point of acquisition, often because neither the buyer's solicitor nor their accountant specialises in this area.

Capital allowances in commercial property

When a commercial property changes hands, the value attributable to fixtures and fittings — heating systems, air conditioning, electrical installations, lifts, fitted kitchens, sanitary ware, and many other embedded items — can qualify for plant and machinery capital allowances. The qualifying amount is typically determined by a capital allowances survey carried out by a specialist surveyor who identifies and values each qualifying item.

The rules around capital allowances on second-hand commercial property changed significantly in April 2014, when the "pooling requirement" was introduced. For properties acquired after that date, the seller and buyer must agree a value for the fixtures in a s198 election before the buyer can claim allowances. Where this election was not completed — which is common in transactions where neither party's advisers raised it — the opportunity to claim may be restricted or lost entirely, depending on the specific circumstances.

Retrospective claims on older acquisitions

For commercial properties acquired before April 2014, the pooling requirement does not apply, and buyers can still claim allowances on the qualifying fixtures even if no election was made at the time. The claim is made by instructing a capital allowances specialist to carry out a survey, value the qualifying items, and submit an amended tax return or include the claim in the current year's return. There is no time limit on the survey itself, but the tax reclaim is subject to the normal four-year amendment window for Corporation Tax and income tax returns.

This means that a commercial property investor who acquired a property in 2018 and has never claimed capital allowances on the fixtures may still be able to recover tax paid in the 2021 and 2022 tax years, as well as carry forward the remaining pool balance against future profits. The value of retrospective claims on substantial commercial properties can be significant — six-figure recoveries on properties with a purchase price of £1 million or more are not uncommon.

SDLT overpayment recovery

Stamp Duty Land Tax overpayments are more common than most property owners realise. The most frequent sources of overpayment include: incorrect application of the residential versus non-residential rate — properties with mixed use, including any commercial element, should be taxed at non-residential rates which are significantly lower; failure to claim Multiple Dwellings Relief where two or more dwellings are acquired in a single transaction; incorrect classification of annexes, granny flats, or outbuildings; and errors in calculating the chargeable consideration where the transaction involved non-cash elements.

SDLT overpayments can be recovered by submitting an amendment to the original SDLT return, which can be done up to 12 months after the filing date of the original return. For returns submitted more than 12 months ago, recovery requires an overpayment relief claim to HMRC, which must be submitted within four years of the effective date of the transaction. Specialist SDLT advisers review the original transaction documents and SDLT return to identify any grounds for overpayment relief.

How to instruct a specialist

Capital allowances surveys and SDLT overpayment reviews are typically offered on a contingency basis — the specialist charges a percentage of the tax recovered, with no fee if no recovery is achieved. While this aligns incentives, it also means that specialists will only take cases where they assess a reasonable prospect of recovery. An initial consultation is typically free of charge and will quickly establish whether there is a viable claim.

When selecting a specialist, look for membership of a relevant professional body, a track record of defended claims, and clear contractual terms around the contingency fee structure and what happens if HMRC challenges the claim. The contingency fee for capital allowances surveys typically ranges from 20-35% of the first-year tax benefit; SDLT recovery fees are typically 20-30% of the recovered amount.