Janine McNeill, Manager, Tax at Grant Thornton Northern Ireland
Given the current climate, commercial property owners may be finding it difficult to attract tenants to lease their premises.
As a result, landlords may need to offer an incentive to potential tenants in order to avoid their properties sitting vacant for long periods of time. This could be in the form of a capital contribution towards the fit-out costs, or perhaps offering your tenant a rent-free period.
So how can you make a saving if you have to contribute cash? A capital contribution of £100,000 towards fit out costs that qualify for main rate capital allowances at 18% could result in a tax saving of £18,000, resulting in a net cost of £82,000 to the landlord.
If an annual investment allowance of £100,000 was available, the net cost could reduce to zero. Alternatively, if the landlord had decided to offer a rent-free period, forgoing £100,000 rent, the tax saving in this scenario will be zero, resulting in a net cost of £100,000 to the landlord.
As with any property negotiations, it will not just be the tax implications that will need to be considered. Both the landlord and tenant will need to ensure that the lease agreement meets all of their commercial needs.
As a landlord, if you wish to make a contribution towards your tenants’ fit out costs, timing will be key, as specific legal wording will need to be included within the lease agreement to protect the entitlement to claim the allowances on contributions made.
It should also be noted that there are complex conditions that need to be met for a landlord to be entitled to claim capital allowances on contributions.
If these conditions are not met, no capital allowances would be available, even if the spend is incurred on qualify expenditure.
If you are considering making a capital contribution, contact your tax advisor to ensure optimal allowances are claimed.
For further information or advice, Janine McNeill can be contacted at Janine.McNeill@ie.gt.com
Grant Thornton (NI) LLP specialises in audit, tax and advisory services.