UK Ltd property depreciation

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.

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 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

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.