Capital allowances can be a very effective way of reducing the after tax cost of purchasing, constructing or refurbishing property. By effectively utilising the capital allowances available within capital property expenditure the amount of corporation or income tax payable can be significantly reduced. Example 1: If £1million of qualifying machinery or plant allowances are identified, the benefit in actual tax saved will be £75,000 in the first year and £229,000 over the first five years, or in the case of an owner occupied property £120,000 in the first year and £243,000 over the first five years. This assumes a 30% corporation tax rate. Example 2: If an office property is purchased for £10 million and £2 million of machinery or plant allowances are identified the effective after tax cost will be £9.4 million, saving £600,000 tax on acquisition. This assumes a 30% corporation tax rate. This saving can be offset against any rental income if the property is an investment property or alternatively taken off taxable profits if the property is owner occupied and used in the course of a trade. Example 3: Using the scenario in Example 2 above for an investment property and assuming a rental income of £800,000 the gross initial yield would be 8%. If we take into account the effect of the tax saving achieved through capital allowances the average net yield over the first five years would be £8.92%. Indictive Values: The following graph shows the value of machinery or plant capital allowances available for different building types expressed as a percentage of the cost incurred: