Capital allowances

In computing tax due on your business profits, you do not get any allowance for depreciation of business assets. Instead, you get a capital allowance over several chargeable periods until the cost of the asset has been fully allowed.

Capital allowances are computed exclusive of grants (s 317) and VAT (s 319).

Machinery or plant

Expenditure on machinery or plant used in your business gets an annual wear and tear allowance of 12.5% (s 284). A similar allowance is given for expenditure on software (s 291).

A 100% allowance can be claimed on expenditure:

  • before 31.12.2020 on energy efficient equipment (s 285A).
  • before 31.12.2021 on vehicles powered by gas (compressed natural gas, liquefied natural gas or biogas), and new refuelling equipment at a gas refuelling station (s 285C).

Disposal of an asset on which allowances were claimed triggers a balancing allowance or a balancing charge depending on whether allowances were underclaimed or overclaimed while the asset was in use (s 288).

Cars

Since 01.01.2007, a car (new or secondhand) costing over €24,000 gets an annual 12.5% wear and tear allowance as if the car’s purchase price were €24,000. An electric car gets a 100% allowance in year one, but remains subject to the €24,000 limit.

The capital allowances and leasing deductions of cars bought or leased since 01.07.2008 are based on the level of carbon emissions (see Benefit in Kind, above). Cars with emissions above 190g/km get no allowance (s 380K).

A taxi or short-term hire car is given an unrestricted write off of the purchase price at 40% per annum on a reducing balance basis (s 286).

Industrial buildings

If you purchase an industrial building for your business, you may be due:

  • an industrial building annual allowance (also known as a writing down allowance) (s 272),
  • an industrial building accelerated writing down allowance (also known as “free depreciation”) (s 273), or
  • an industrial building (initial) allowance (s 271).

If the disposal of an industrial building on which capital allowances were claimed results in an underclaim (or overclaim), a balancing allowance (or charge) may arise (s 274).

Industrial buildings annual allowance may be claimed at the following rates:

15%, in respect of expenditure on:

  • a fitness centre for employees,
  • a childcare premises for employees,
  • palliative care units (hospices),
  • private convalescent facilities,
  • private hospitals,
  • registered nursing homes,
  • sports injury clinics,
  • airport-buildings specified expenditure.

10%, in respect of expenditure on:

  • buildings for intensive livestock production,
  • market gardening structures.

4%, in respect of expenditure on:

  • airport buildings, structures, runways, aprons,
  • camp/caravan site buildings and structures,
  • factories, mills, dock undertakings,
  • mineral analysis laboratories,
  • hotels.

Unused accelerated allowances carried forward beyond the tax life of the building will be lost. However, if the tax life of the building ends before 31.12.2014, only capital allowances unused as at 31.12.2014 will be lost (s 409F409G).

High earners’ restriction

Where your income exceeds €125,000, the maximum reliefs and exemptions you can claim is the higher of:

  • €80,000, and
  • 20% of your total income.

EIIS investment (s 490) is not caught by this restriction (s 485D).

Farm buildings, structures, milk quotas

If you are a farmer, expenditure on farm buildings may qualify for a farm building allowance of 15% in each of the first six years and 10% in the seventh year (s 658).

Expenditure on the purchase of a milk quota may be written off over a seven year period (s 669B).

 

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