What is the Annual Investment Allowance?
The Annual Investment Allowance, also known as AIA is a Government sanctioned tax relief introduced in 2008, which as of January 2016 allows tax relief in one tax year to be claimed up to a limit of £200,000 based upon your capital expenditure in that tax year.
So if you have made significant capital expenditures on your property in the past 18 months then you may be able to utilise your Annual Investment Allowance in conjunction with Capital Allowances to afford you the ability to maximise your current tax year’s tax relief.
What does this mean?
When you make a Capital Allowances claim for your commercial property, the amount of tax relief you obtain from it must be spread out over a number of years in what is known as your Writing Down Allowances (WDA).
Usually set at 8% or 18% these WDAs mean that if you have found say £100,000 in Capital Allowances, in any one year only 8% or 18% of them may be utilised for tax relief. You still gain the full benefit of the Capital Allowances you identify as you continue to apply the 8% or 18% WDAs each year until your Capital Allowances are fully used up, it just means that instead of receiving your tax relief all in one year it has to be spread over a number of years.
With the Annual Investment Allowance things are different. You may utilise your full Capital Allowances up to the amount of £200,000 in one tax year regardless of the WDA rules. This means if you found £100,000 of Capital Allowances in your commercial property, rather than having to split the tax benefit of that £100,000 over a number of years (as per WDA), you can utilise it all in one tax year.
Create a loss with the Annual Investment Allowance
Importantly the Annual Investment Allowance not only allows you to claim up to £200,000 in one tax year of your identified Capital Allowances, it is also the ONLY Capital Allowance product that allows you to create losses on your account.
What this means is that if you identify the same £100,000 in Capital Allowances for your commercial property as above, but your net profit is limited to £50,000 then you can only claim your Annual investment Allowance limit up to that £50,000 amount. This creates a loss of £50,000 on your account that can be carried forward to the next tax year.
If you make £50,000 profit again that year then the amount will be fully utilised and written off. If you make less than £50,000 profit that year then the amount will be carried forward to the next tax year and so on until the full £100,000 amount is utilised.
What to do now?
If you own a commercial property that you have made capital expenditure on in the last 18 months then you could be viable to make a claim for Capital Allowances, utilising your Annual Investment Allowance to obtain significant tax relief in your current tax year.
Take action today to make your claim for Capital Allowances!
We offer a no obligation, free audit of your ability to make a claim so there’s nothing to lose by getting in touch.