Energy efficiency information for landlords

We are particularly keen to encourage landlords to take advantage of all available assistance to improve the energy efficiency of their properties. This page gives brief details of the schemes available with further information on each scheme accessible via clicking on the highlighted links.

Enhanced Capital Allowance

The Enhanced Capital Allowance is a key part of the government's plan to tackle climate change and was introduced to encourage businesses to invest in low carbon energy saving equipment to assist the UK in meeting its international climate target agreed in the Kyoto Protocol of reducing carbon emissions by 20%. It provides businesses with an enhanced tax relief in exchange for investing in energy-efficient plant and machinery.

The equipment installed must be selected from the Energy Technology Product List which was first published in 2001 and is updated regularly. For a product to appear on the Energy Technology Product List it must meet the energy saving criteria as defined in the Energy Technology Criteria List.

The scheme is open to all businesses which pay UK corporation or income tax, regardless of size, sector or location and provides 100% first year capital allowances on investments in new and unused energy saving equipment. Certain costs involved in the provision of energy saving plant and equipment such as transport of the equipment to the site and some direct installation costs can also be claimed for.

Benefits

An Enhanced Capital Allowance provides 100% tax relief on any investment in energy saving equipment in the same tax year as the purchase is made. Therefore a business paying corporation tax at 30% will receive 30p tax relief for every £1 invested in energy saving equipment.

As well as the added tax incentive, equipment that is energy saving will cost less to run, which will reduce both a company's energy bills and Climate Change Levy. Hence there exist significant financial benefits to investing in energy saving equipment.

Furthermore the public is increasing concerned by climate change and often look at how environmentally friendly a company's policies and production methods are before deciding to invest in its products and services. A tenant is much more likely to rent a property that has an energy saving boiler installed as this will mean lower energy bills for them - leaving them more money to pay the rent!

What is covered?

The Energy Technology Product List is split into the groups listed below, and then further into 54 sub technologies, such as speed motors and biomass boilers.

It is also possible to claim for a qualifying product which comprises a component (a motor for example) in a larger piece of plant or machinery which does not itself qualify for the Enhanced Capital Allowance.

The 16 groups currently on the Energy Technology Product List are:

• air-to-air energy recovery
• automatic monitoring and targeting equipment
• boiler equipment
• combined heat and power
• compact heat exchangers
• compressed air equipment
• heat pumps
• heating, ventilation and air conditioning (HVAC) equipment
• lighting
• motors and drives
• pipework insulation
• radiant and warm air heaters
• refrigeration equipment
• solar thermal systems
• uninterruptible power supplies

An up to date list can be found on the Enhanced Capital Allowance Scheme.

Who is eligible?

All businesses which pay UK corporation or income tax are eligible, irrespective of size, sector or location.

A sample calculation

Capital allowances enable businesses to write off the capital cost of purchasing plant and machinery such as cars, computers, boilers and motors against their taxable profits. The general rate of capital allowances is 25% per year on a reducing balance basis.

For example if a business purchases a new boiler for £1,000, it could claim capital allowances of £250 (25% of £1,000) against the taxable profits of the period of investment. Assuming the company pays corporation tax at 30% the effect of the capital allowance for spending on the boiler in the period of investment would be to reduce the business's tax bill by £75 (30% of £250).

However, if the business invested the same amount in an energy saving boiler from the Energy Technology Product List, it could claim a 100% capital allowance of £1000 against the taxable profits of the year of investment. Again, assuming that the company pays corporation tax at 30% the effect of the first year allowance would be to reduce the business's tax bill by £300 (30% of £1,000).

The following table illustrates the effect of the enhanced capital allowance as opposed to the normal allowance for a company paying tax at 30%. There are no further costs in years 2-10 for the Enhanced Capital Allowance as 100% of the allowance is claimed in year 1.

How to claim

Enhanced Capital Allowance claims should be submitted as part of your normal corporate or income tax return. It is therefore important to retain all the documentation relating to your claim which may include:

• Invoices
• Dated screen prints
• Information from the company that installs the equipment

HM Revenue and Customs may investigate any aspect of a tax return, therefore it is important to ensure that you have to hand all the necessary evidence to support your claim.

Further information

Please see the Enhanced Capital Allowance Scheme for full details.

Energy performance certificates

The European Commission's Action Plan on Energy Efficiency (2000) indicated the need for specific measures in the building sector: it is estimated that 40% of final energy consumption in the European Community occurs in buildings. EC research has indicated that by improving energy efficiency carbon emissions from buildings could be reduced by 22%. In order to achieve this the Directive on the Energy Performance of Buildings was published by the Commission in May 2001.

Article 7 of the Energy Performance of Buildings Directive makes it a requirement that an Energy Performance Certificate must be made available whenever a building is constructed, rented or sold.

The Energy Performance of Buildings Directive

The European Parliament and the Council signed the agreed text of the directive at Energy Council on 25 November 2002. The Directive became European Law upon its publication in the EU Official Journal on 4 January 2003.

The principal objectives of the directive are:

• to promote the improvement of the energy performance of buildings within the European Union through cost effective measures
• to promote the convergence of building standards towards those of Member States which already have ambitious levels

The measures include:

• methodology for calculating the energy performance of buildings
• application of performance standards on new and existing buildings
• certification schemes for all buildings
• regular inspection and assessment of boilers / heating and cooling installations

Implementation of the directive

The Directive must be implemented by all member states within 36 months of becoming law, i.e by January 2006, however Member States do have an additional three year period to apply the provisions of:

• Article 7: Energy Performance Certificates
• Article 8: Inspection of Boilers
• Article 9: Inspection of Air Conditioning Systems

This is to enable Member States to develop suitable energy rating systems and certification schemes for all buildings that fall within the scope of the Directive as well as to allow sufficient time for the training and accreditation of sufficient personnel to undertake the energy performance assessments.

The final date for implementation was therefore 4 January 2009.