Are you maximising your capital allowances claim?
By Chris Barlow, MHA MacIntrye Hudson
I am constantly surprised by the number of commercial property owners/developers who overlook the availability of capital allowances claims available to them.
Capital allowances claims is a complicated area, and any commercial purchaser would be well advised to take professional advice to ensure the best possible outcome for them and the seller.
When a property is purchased, the cost of the building can be separated from the fixed plant and machinery. Separating them, means that the fixed plant and machinery qualifies for tax relief in the form of capital allowances. When we talk about fixtures and fittings, we mean the second-hand fixtures and fittings found within a property, such as light fittings, cold water systems, air-conditioning systems etc.
It’s important to note however, that there are rules in place to limit the purchaser’s claim for fixtures and fittings to no more than any claim that has previously been made by the seller, so it’s important for anyone purchasing commercial property to take appropriate advice in respect of any purchase and the qualification or not for capital allowances claims.
If the rules are not followed a purchaser will not be able to claim any capital allowances for fixtures and fittings and, crucially no subsequent purchaser will be able to claim allowances on those fixtures and fittings either. This could have a very negative effect on the marketability of the property.
The Fixed Value Requirement introduced in 2012 also needs to be taken into consideration. This applies to expenditure on which capital allowances have already been claimed. It requires that the seller and the purchaser fix the value of the qualifying fixtures and fittings, with agreement referred to as a Section 198 election.
The difficulty herein lies that the buyer and seller have opposing objectives; the seller, in the main, would like to restrict the Section 198 claim, retaining the ability to claim capital allowances on the plant and machinery they have effectively sold whilst the buyer would usually want as high a claim as possible to enable it to be able to claim maximum capital allowances in the future.
Pooling Requirement
Another area that needs to be considered is the pooling requirement. This means that if the seller was entitled to claim capital allowances, then the buyer would only be eligible to claim allowances once the seller first pools (claims capital allowances on) the expenditure. This must be done within a period of 2 years. Failure to do so, could result in a rejection of the claim by HMRC – so prior to exchange of any contracts, purchasers should ensure that their advisers have done proper due diligence on the capital allowances situation.
When making a claim, the wording should be specific. Elections with generic wording such as ‘all plant and machinery’, or those that merely set out a proforma list of fixtures and fittings, should be avoided as this might call into question the validity of the election.
Contact us
For more information or if you would like to discuss any of the above further, please Chris Barlow – chris.barlow@mhllp.co.uk
