What Are Capital Allowances Worth?

The amount of plant and machinery in a building will vary depending on a number of factors. However as a guide, the cost of constructing an air-conditioned office building may be made up of as much as 35% plant and machinery, whilst this could still be 20% to 25% on a less sophisticated building.

Even the most basic of industrial buildings may contain basic heating, electrically operated roller shutters and fire precautions, and could account for up to 10% of their construction cost, proving that irrespective of the type of property, substantial savings can be made.

On a refurbished property, up to 75% of the expenditure could be eligible for capital allowances.

When applied to purchased buildings, which includes the cost of land (on which allowances are not available) plant and machinery could account for as much as 25% of the purchase price of an air-conditioned office building, 15% of a basic office building and up to 8% of an industrial building.

The cost of plant and machinery, on which capital allowances are available, may be written-down against tax at the rate of 25% each year, on a reducing balance basis.

Industrial Buildings Allowances (IBA's) are available on a straight line basis over the 25 year "industrial life" of a qualifying building. Thus a building first coming into a qualifying industrial use will be written-down at 4% per annum over its industrial life. A property acquired after say 10 years of industrial use would have the IBA's written-off over the remaining 15 years.

For further information relating to Industrial Buildings Allowances, please refer to PJB Datasheet No.2.