Capital allowances – annual tax deductions on investment in certain property-related plant and machinery – can provide rapid and valuable tax relief.
The regime is a complex one, which is why working with experts in the field, like George Hay, is likely to be a wise investment in maximising the success of claims.
Significant changes taking place from April 2014 mean that it will become important to seek specialist advice before a property is bought or sold otherwise very valuable relief may be lost completely.
Under the current regime, typically it suited a purchaser to keep quiet about capital allowances before an acquisition, in order to maximise their chance of securing valuable capital allowances.
From April 2014 the position has been completely reversed and, unless the capital allowances position is agreed with the vendor, in some cases the opportunity to claim capital allowances may be lost forever.
From April, capital allowances will only be available to someone buying a second-hand commercial property (not a new build) if the past owner “pooled” qualifying expenditure for capital allowances, i.e. notified it to HM Revenue & Customs in a tax return.
There are various reasons why a vendor might not have pooled expenditure before a sale. They may not pay tax – for example, a pension fund – or did not make enough profit to need to claim the additional tax relief provided by capital allowances.
However, if the previous owner failed to claim capital allowances, the entitlement will be lost for all future purchasers of the building. It will still be possible to protect property buyers from April 2014 but the necessary steps must be taken before the purchase.
Another element of the capital allowances regime linked to the sale and purchase of second-hand commercial buildings will also start to make itself felt from April 2014.
The fixed value requirement, introduced in April 2012, means that if the purchaser wants to secure tax relief on fixtures where the seller has claimed capital allowances, buyer and seller must agree the value attributable to the fixtures and make a formal election within two years of the date of the sale to fix that value. This will involve drawing up a clear picture of the building’s capital allowances history.
If the buyer and seller cannot agree a value, the buyer will have to make a formal application to the First-tier Tax Tribunal for a value to be set if they are to claim tax relief, which could be a costly process.
Whether you are buying or selling a second-hand commercial building or are considering investing in plant and machinery, the George Hay team can provide expert advice to help clarify your capital allowances position and maximise the value and success of claims. For more information on our capital allowances services, please contact Phil Blackburn.