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Changes to the capital allowance rules could prevent purchasers of buildings that contain plant and machinery from obtaining valuable capital allowances says commercial property agent Prop-Search and accountants Isis Business Solutions.
From April 2014, capital allowances are only available to a purchaser of a building containing plant and machinery if the past owner has ‘pooled’ the relevant expenditure for capital allowance purposes, in a chargeable period when it owned the property. Pooling expenditure means either making a claim for capital allowances, or notifying the Inland Revenue of the amount of the qualifying expenditure and adding it to the pool without actually making any claim.
Simon Toseland, a Director at Prop-Search warns that purchasers will need to take particular care if the seller has not claimed allowances; “If the seller has not claimed allowances but was entitled to, the purchaser will need to ensure that the seller agrees in the sale documentation to pool its expenditure. Purchasers of property will need to look into the capital allowance position before they acquire a property. Allowances can be lost if purchasers wait until after the acquisition when they are drawing up tax computations.”
Businesses buying buildings second-hand should take a more proactive approach to capital allowances at the time of the purchase and agree an election for a fair apportionment with the seller. Buyers can no longer sit back and rely on getting specialist capital allowances advice after the event. Of course on some purchases buyers may have to take a pragmatic view about the potential worth of capital allowances. A buyer of a 25 year-old building that has never been refurbished for example, may be more relaxed about the seller failing to provide any information about capital allowances than the buyer of a three year old building.
Sellers holding commercial property, who may wish to sell, should take this opportunity to make sure as part of their corporation tax compliance that they can properly evidence from April 2014 that the pooling requirement is met. Sellers should also be aware that buyers are likely to be more aggressive in negotiating on capital allowances. It will be interesting to see whether sellers who have the records to fully evidence the capital allowances position so that they can pass the value on to buyers can command a better price. It may become standard practice to deal with this in the heads of terms.
Adam Shakespeare, Manager at Isis Business Solutions, adds: “Capital allowances are valuable tax reliefs available in respect of expenditure on plant and machinery. This includes expenditure on integral features and the thermal insulation of the building. HMRC regard a fixture as an item of plant and machinery that is installed in or fixed to a building so as to become part of the building.”
“Allowances are available at 8% on plant and machinery that qualifies as an ‘integral feature’ such as lifts and air-conditioning in a building but at 18% on other items such as moveable office partitioning. In some cases, allowances can be available at 100% for the purchaser of designated environmentally beneficial technologies.”
Pooling will apply to property, other than new buildings, acquired by corporate taxpayers on or after 01 April 2014 and for income taxpayers on property which is acquired on or after 06 April 2014. This new pooling requirement will be in addition to the fixed value or election requirement that has applied for property acquired since April 2012 and must also be satisfied if a purchaser of ‘second-hand’ fixtures is to obtain allowance.
Further information can advise can be obtained from Prop-Search - Tel: 01933 223300 / 01604 492000 or Isis Business Solutions - Tel: 0845 345 7785.