Minimum energy efficiency standard – Is there a tax saving opportunity?

Date posted: 9th Oct 2018

The Minimum Energy Efficiency Standards (MEES) legislation came into force in April 2018.

In essence, it is now unlawful for landlords to agree to either issue a new lease or renew an existing lease if the property has an Energy Performance Certificate (EPC) rating of F or G. These changes are part of the Government’s drive to improve energy efficiency of all properties – both domestic and commercial.

Whilst we do not wish to dwell too much upon the work that some landlords will need to undertake to their premises, they should be aware that there can be significant tax reliefs available for expenditure on buildings, particularly commercial buildings. These could go some way to reduce the overall cost of improving the premises.

Expenditure on commercial buildings usually falls into two categories – revenue or capital. The former covers repair costs such as replacing windows and doors for example and such costs are usually allowable against the rental income as a direct deduction. The latter expenditure, deemed to be capital, covers such items as installing something that wasn’t their previously such as thermal insulation, energy efficient lighting etc.

There is no clear dividing line between capital and revenue – it is truly one of the grey areas of taxation built upon by case law rather than statute which is largely silent on this area.

However, since the introduction of legislation in 2008, it does mean that some tax relief can be claimed on such items as:

1. an electrical system (including a lighting system)
2. a cold water system
3. a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system
4. a lift, an escalator or a moving walkway
5. external solar shading

Also, thermal insultation (double glazing, draught exclusion, cavity wall filling etc) can also be eligible for tax relief.

In addition, energy/water savings technologies can also have special tax reliefs attached to them, depending upon if they are on a Government approved list.

So whist you may have to commit a large amount of expenditure to improve the energy efficiency of your commercial building, this cost can be mitigated by tax reliefs.

Give us  a call, if you require further advice.

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