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Tax breaks on premises improvement projects

Many GP surgeries across the UK could be sitting on thousands of pounds worth of unclaimed capital allowances, says Chris Johnson.

Tax-deductible costs of a newly built surgery may be 30% to 45% (Image: iStock)
Tax-deductible costs of a newly built surgery may be 30% to 45% (Image: iStock)

Practices in owner-occupied premises that have been extended, refurbished or newly built often fail to realise that they may be able to claim for significant sums of money in the form of tax relief called capital allowances.

Capital allowances can reduce GPs’ tax liabilities when they incur capital expenditure on constructing or refurbishing their surgery. On new buildings, tax relief can amount to many thousands of pounds if managed correctly – particularly if capital allowances are considered early on in a project.

Tax-deductible costs

For example, the tax-deductible costs involved in constructing a new GP surgery premises can be in the region of 30% to 45%. Therefore, a £1.5 million scheme with tax-deductible costs of 30% may generate £450,000 in capital allowances. If all the GP partners are 40% taxpayers, this equates to tax savings of £180,000 to split between them – a huge sum.

Unfortunately capital allowances are not well understood by the construction industry and may get overlooked by some accountants. So at a time when GP practices are being forced to tighten the purse strings, making sure you do not lose out on capital allowances could prove crucial to the practice's financial health.

Retrospective claims

Capital allowances can be claimed retrospectively. So GP owner-occupiers who have built, bought, extended or refurbished their premises in the past few years should make the time now to check whether they have indeed claimed for everything they are entitled to.

Don’t be complacent. Knowing you have received a certain amount of capital allowances relief following a project does not necessarily mean that you have benefitted as much as you could.

At the planning stage

For practices considering a project it is highly advisable to enlist the advice of a capital allowances expert such as a specialist surveyor before you begin. Thinking that the capital allowances need to be calculated only at the end of the project is why many practices miss out.

Capital allowances are typically for the fixed ‘plant and machinery’ aspects of the building such as the sanitary ware, heating systems, kitchens and lighting.

An expert can identify which plant and machinery items will bring in optimum allowances before the project begins. They will also monitor this throughout the project. This is important because some projects can take a long time and Items that attract maximum capital allowances now may not do in a year’s time if the rules are changed in the next Budget. 

For example, utilising energy efficient and water saving technologies currently has the potential to provide 100% tax relief in the first year, with the added potential saving of lower energy bills.

Top tips

  • Refurbishment costs associated with the renewal of building systems (wiring, plumbing, central heating and so on) and can be up to 75% tax deductible.
  • If your surgery is owned by your primary care organisation (PCO), purchasing it could result in 20% of the purchase price being tax deductible. For example, if you purchase your existing premises for £1 million, this generates savings for 40% taxpayers of £80,000.
  • Considering the building’s energy efficiency at outset can also help increase available capital allowances.
  • Utilise energy efficient and water saving technologies to attract an enhanced capital allowance (ECA) of 100% of the cost in the first year.
  • Get a second opinion on the capital allowances you can claim. The tax rules are complex and often change.

Calculating potential relief

GPs considering a new build surgery will have many issues think about and the impact of tax relief on the project’s affordability may be the last thing on their minds. However it is quite straightforward for a capital allowances specialist to provide a projection of the potential tax relief from the initial construction cost budgets.

  • Chris Johnson is director of surgery premises specialists GP Surveyors 

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