UK Ltd property depreciation

Skag

Does property depreciation over a number of years apply in UK Ltd that own properties? (BTL properties).

This is for the purposes of offsetting earnings, and tax paid.

I know in the US and other countries it does.

ThePants999

...but properties tend to appreciate, not depreciate? With exceptions, of course.

westernpromise

Skag wrote: »

Does property depreciation over a number of years apply in UK Ltd that own properties? (BTL properties).

This is for the purposes of offsetting earnings, and tax paid.

I know in the US and other countries it does.

No. You don't get to depreciate.

00ec25

no
a key difference between UK accounting principles and other countries is that you never depreciate real estate in the UK and any attempt to do so would be disallowed for UK corporation tax purposes

westernpromise

This is one of the often-overlooked differences between the UK and other rental markets in Europe, such as Germany. Over there, blocks of flats are bought by corporates, and are let out on long tenancies, but incomplete - so the tenant may have to put a kitchen in. The rents and the depreciation then substantially cancel each other out so that letting generates cash but little reportable taxable profit.

Anyone who wants that model for the UK should perhaps be careful what they wish for.

Skag

So other countries' companies can be more tax efficient due to depreciation of fixed assets, as opposed to the UK.

Is there anything equivalent in the UK? I read "capital allowances" but wasn't sure if that's the same thing.

00ec25

Skag wrote: »

So other countries' companies can be more tax efficient due to depreciation of fixed assets, as opposed to the UK.

Is there anything equivalent in the UK? I read "capital allowances" but wasn't sure if that's the same thing.

you have been told that you cannot do this - accept that fact or pay an accountant to confirm it for you

capital allowances are not available on real estate property - they are available on other things
https://www.gov.uk/capital-allowances/what-you-can-claim-on

kinger101

Skag wrote: »

So other countries' companies can be more tax efficient due to depreciation of fixed assets, as opposed to the UK.

Is there anything equivalent in the UK? I read "capital allowances" but wasn't sure if that's the same thing.

Depreciation is never allowable for tax purposes. Capital allowances replace these. However, as has already been explained, you cannot claim CA on residential dwellings or the fixtures and fittings therein.

There is something called "replacement relief" to cover replacement of fixtures and fittings. If you cannot understand how it works, employ and accountant.

Skag

00ec25 wrote: »

accept that fact or pay an accountant to confirm it for you

Did I mention anywhere that I don't accept it? :rotfl:

Skag

Thanks for all your replies and explanations so far.
One thing that some people fail to understand in forums is that people don't come here to find experts; maybe they will. They come here to get quick answers by people who may have prior knowledge to subjects and can guide them through.
I'm not looking for accounting advice here, contrary to what is believed, I was looking for a quick answer, and got it. If I need to get an accountant, I will.

bowlhead99

Skag wrote: »

Did I mention anywhere that I don't accept it? :rotfl:

'Can you depreciate property and offset it for tax? You can in other countries?'

'No, we don't allow that under tax rules in the UK'

'Well, I can in other countries. Is there something like it so I can do it in the UK?'

'No, really. We don't allow that under tax rules in the UK. Accept it...'

'Did I say I didn't accept it ROFL'

Yeah, you kinda didn't seem to accept it first time around

Basically in the UK, "depreciation" is the accounting terminology for knocking down the value of your fixed assets each year and putting it as a charge through your profit and loss account /income statement as you go along.

Whereas a "capital allowance" is the tax terminology for the amount that you are allowed by HMRC to recognise as a deduction from your gross profits when computing your taxable income, to reflect the fact that the capital value of your assets reduces over time as you utilise the assets.

There can be a big disconnect between what you might think you should recognise as "depreciation" of certain assets for accounting purposes and what HMRC will allow as a reduction of their capital value for tax, so capital allowances and the resulting net profit for tax are often different from your depreciation and profit you might like to have in your Companies House filed accounts (assuming you're a corporation).

If your business has a car or a van or factory machinery that it uses a lot, HMRC accept that it's not going to last forever and you're genuinely eroding it's economic value the more you use it, and the available capital allowances ensure that you don't pay a crazy amount of tax on gross profits that don't really translate to real bankable profits over the long term. But with a residential property properly maintained, it's not going to decline to zero value over three or five or ten or 25 years, so you can't get a capital allowance to arbitrarily reduce the value of the asset each year. Because you're not actually 'using up' the foundations, walls, roof or location of the property simply by occupying it.