Most commercial property buyers focus on the purchase price, the yield, and the planning potential. Very few think about the tax relief sitting inside the walls, floors, and ceilings of the building they just bought. That tax relief — embedded capital allowances — can be worth tens of thousands of pounds, and in some cases significantly more. It is also routinely left unclaimed.
Here is what it is, how it works, and why it matters particularly for commercial property investors and conversion projects.
What Are Capital Allowances?
Capital allowances are a form of tax relief granted by HMRC that allow businesses to deduct the cost of certain assets from their taxable profits. Instead of deducting the full cost in the year of purchase, the relief is given over time at a set rate — typically 18% per year for general plant and machinery, or 50% in the first year under the Annual Investment Allowance for qualifying expenditure.
Most business owners are familiar with capital allowances on equipment they buy: machinery, vehicles, computers. What many do not realise is that the same relief also applies to assets that are physically built into or attached to a commercial property — which is where embedded capital allowances come in.
What Are Embedded Capital Allowances?
Embedded capital allowances (sometimes called unclaimed capital allowances or inherent capital allowances) are capital allowances that attach to fixtures and fittings that are physically embedded within the fabric of a commercial building.
The word "embedded" is key. These are not items you can pick up and move — they are things like:
These assets were originally installed and paid for by a previous owner. When you buy the building, their cost is effectively bundled into the purchase price — but the capital allowances attached to them may never have been claimed, or may still be claimable by you as the new owner.
When you buy a commercial property, you are not just buying bricks and mortar. You may also be buying the right to claim tax relief on qualifying assets already embedded in the building — assets that cost money to install but have been sitting there, unclaimed, ever since.
How Much Can You Claim?
This varies considerably by property type, age, and the assets within it. As a rough guide, the qualifying embedded value typically represents between 15% and 45% of the purchase price of a commercial property — meaning on a £500,000 purchase you might identify between £75,000 and £225,000 of qualifying expenditure.
The tax relief you actually receive depends on your tax position. A company paying corporation tax at 25% claiming against £50,000 of qualifying assets would receive £12,500 back — as a tax reduction, not a taxable gain. That is money back in your pocket, not on your tax return as income.
A client acquired a vacant commercial warehouse in Southampton and occupied it for their own business. Alongside the acquisition strategy and preparation of drawings for bonded warehousing, we identified a significant embedded capital allowances claim within the building's existing fixtures and fittings.
Why Are They So Often Missed?
Several reasons. First, most solicitors and surveyors are not capital allowances specialists, and the issue is rarely raised during conveyancing unless the buyer specifically asks. Second, many buyers — particularly those buying their first commercial property — simply do not know the relief exists. Third, there are rules around pooling and election that must be handled correctly at the point of purchase, otherwise the right to claim can be lost entirely.
Since 2014, buyers and sellers of commercial property have been required to agree a figure for embedded fixtures through a process called the Section 198 election. If this is not done correctly at the time of purchase, the buyer may lose their right to claim capital allowances on those assets forever. This is why getting specialist advice early — before you complete — matters.
Who Can Claim?
To claim embedded capital allowances you need to be using the property for a qualifying business purpose — meaning you or a company connected to you is operating a trade, profession, or property business from or through the building. This includes:
Commercial landlords letting the property to business tenants. Owner-occupiers running a business from the building. Property investors who hold commercial property within a limited company structure. In some cases, investors carrying out a commercial-to-residential conversion may also be eligible for certain allowances on qualifying assets during the commercial phase.
Pure residential landlords cannot claim capital allowances on residential property — but commercial property held through a company, or commercial units within a mixed-use building, typically qualify.
How the Process Works
Can You Claim on a Property You Already Own?
Yes, in many cases. If you bought a commercial property without a Section 198 election and the original claim has never been made, a retrospective survey may identify qualifying assets that can still be claimed. The rules are complex and depend on what the seller's tax position was, but it is worth having a specialist look at any commercial property you own that you have never had surveyed for capital allowances.
Talk to Andrew About Your Commercial Property
Capital allowances are one of several ways Andrew helps clients extract more value from commercial property — alongside planning strategy, conversion, and asset management. If you are looking at a commercial acquisition or own commercial property you have never had reviewed, get in touch.
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Andrew's background as a CIMA Chartered Accountant gives him a different perspective on commercial property to most planning consultants. He looks at the full financial picture — planning, value uplift, and tax efficiency — not just the consent.
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This article is for general information only and does not constitute tax advice. Capital allowances rules are complex and your specific position will depend on your tax status, the property, and how the purchase is structured. Always take advice from a qualified accountant or capital allowances specialist before making a claim.