Where certain ‘fixtures’ are installed in a commercial building the cost of such expenditure qualifies for capital allowances. Where the building is subsequently sold then the purchaser will obviously wish to continue claiming capital allowances on the second-hand fixtures as part of the purchase consideration. However, from 1 April 2014 a purchaser may be prevented from claiming such capital allowances unless certain procedures have been implemented PRIOR to the acquisition being completed.
Purchasers of previously used commercial property need to be aware that FROM 1 APRIL 2014 capital allowances will only be available on ‘fixtures’ installed in a property (classified as plant and equipment or integral features) where such expenditure has been previously pooled for capital allowances purposes by the seller.
Where a building is acquired which incorporates such fixtures, capital allowances will be potentially available to the purchaser dependent upon the price paid and the value agreed with the seller.
Where the seller was entitled to claim capital allowances on the fixtures but has NOT made such a claim the purchaser should ensure that the seller agrees to pool such expenditure in the sales contract. Purchasers should therefore enquire about the seller’s capital allowance position at an early stage in the negotiations so that action can be taken to preserve such valuable capital allowances.
ELECTION UNDER S.198 CAPITAL ALLOWANCES ACT 2001
The new pooling requirement explained above is addition to an election which has applied since April 2012. The seller and purchaser must make an election within two years of completion setting out the agreed ‘fair value’ of the fixtures. Where agreement cannot be reached then an application can be made to the Tax Tribunal for the value to be determined.
Where a valid election has been made then the seller of the property will be required to treat the agreed value as disposal proceeds in its capital allowances computation with the purchaser then eligible to claim capital allowances on the same amount.
It should be noted that where an election has not been made (and an application to the Tax Tribunal not applied for) then the purchaser will be unable to claim capital allowances on the fixtures as part of the property acquisition. Subsequent purchasers will also be prevented from obtaining capital allowances. This will adversely affect the market value of the affected properties.
ACTION SUMMARY FOR PURCHASERS OF COMMERCIAL BUILDINGS
- Establish from the seller (either directly or via their accountant or solicitor) whether a capital allowances claim has been made on ‘fixtures’ incorporated into the building being acquired.
- Obtain a written agreement PRIOR TO COMPLETION that the seller has pooled the expenditure on fixtures in the property (or else that it will do so prior to the completion of the legal transfer of the property).
- Ensure that a joint election is made with the seller within two years of purchase. Failing that the purchaser should make a unilateral application to the First-tier Tax Tribunal for the amount to be determined independently.
- Contact their accountant and/or solicitor at an early stage during the negotiations to acquire a property to ensure that all the necessary information is obtained and correct procedures implemented.
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