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February 14, 2018
By Anthony Andreasen, Head of Tax at RMT Accountants & Business Advisors Ltd
As Christmas approaches, thoughts as ever begin to turn towards what changes the New Year will bring – and there’s one particular change that should already high on the agenda for anyone involved in commercial property transactions.
After 31 March next year, the ability of commercial property buyers to claim Capital Allowances will change forever – and for anyone who isn’t prepared properly, it could totally disappear.
By way of background, a business is entitled to tax relief for capital expenditure on certain items (including fixtures in properties) via capital allowances. Under the current regime, a business can claim capital allowances at a rate of 8% on integral features allocated to the special rate pool and 18% on other plant and machinery allocated to the general pool.
Subject to a few specific exceptions, Capital Allowances will not be claimable by a buyer acquiring property after the above date where the previous owner has not ‘pooled’ its qualifying expenditure (i.e. allocated the expenditure on the fixtures to the special rate pool or the general pool) by a seller and included in a Fixed Value Requirement or a Disposal Value Statement.
If the seller has not done this, they will lose this valuable tax relief.
For example, in the purchase of a property post 31st March 2014 for £1m where the Buyer would previously have expected to claim circa £300k of allowances there will be a loss of all or part of the £300,000 if the Seller has not pooled and agreed to pass the allowances to the Buyer in the approved format.
The tax loss ranges from £60,000 to £135,000 over the length of time (i.e. from a 20% taxpayer to a 45% taxpayer).
So if you (or your clients, fellow accountants) are facing this situation, what should you be doing?
In the first instance, take the time to find out exactly what the changes could mean to you, both now and for anything you have planned before they come into effect, and get independent advice if anything isn’t crystal clear.
Reviewing all your historic property expenditure to ensure that all allowances are pooled wherever possible would also be a worthwhile exercise.
There’s no restriction on retrospective claims (apart from entitlement issues) up until the sale of any given property and there is no reason why you shouldn’t benefit from the relief now irrespective of the forthcoming change.
Finally, we advise purchasers to ensure that the sale and purchase agreement contains either a warranty that the seller has ‘pooled’ its capital expenditure on fixtures in the property or an undertaking that it will do so prior to completion of the transfer of the property.