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Commercial Property Losses

Newsletter issue - May 2010.

Normally a loss arising from letting of commercial or residential property, can only be carried forward to set against profits from that same property business, (see above for different treatment for losses from furnished holiday lettings). However, where part of the loss has been generated by the deduction of capital allowances, that part of the loss is available to set against the owner's other income in the same tax year.

A capital allowance generated loss is very unlikely to arise in connection with letting residential property as capital allowances cannot be claimed for equipment used in residential properties, but such allowances can be claimed for equipment or integral features used in or attached to commercial properties. Improvements to commercial properties made since 6 April 2008, such as new lighting or air-conditioning systems are classified as integral features, and thus qualify for capital allowances.

All integral features and other plant and equipment that qualify for capital allowances can fall within the Annual Investment Allowance (AIA), which gives a 100% deduction in the year the cost is incurred. The AIA is capped at £50,000 per year for expenditure incurred before 6 April 2010, but that cap is doubled for expenditure incurred on or after that date. The capital allowance generated loss from a let commercial property could be considerable where there has been high expenditure on items that qualify as plant, machinery or integral features.

Do be aware that losses made after 24 March 2010 may be barred from being set-off against other income if there was a plan in place to deliberately avoid tax by generating those losses.