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Don’t miss out – review your capital allowance

Ben Chaplin

Q: What are the rules that come into force next month regarding capital allowances for commercial buildings?


A two-pronged approach was written into the legislation to ensure that HMRC does not give allowances more than once for the fixtures included within the fabric of commercial buildings.

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The fixed-value requirement came into effect in April 2012, meaning broadly that where a seller claims capital allowances on fixtures they purchased, a fixed price must be agreed between the buyer and the seller for those fixtures, and the value must be agreed within two years of the transaction. The most common approach will be a joint election (s198 CAA 2001), fixing the price on a just and reasonable basis.

The second change comes into force in April. It requires all sellers to pool the fixtures prior to sale, otherwise the buyer will be unable to claim allowances on those fixtures included within the building. Depending on the building, these fixtures will range from 10 per cent to 30 per cent of the property value, so there can be a considerable amount of money at stake.

The end of the transitional period could see ill-advised purchasers lose the ability to claim capital allowances on existing fixtures within the fabric of the building if they do not ensure that the seller has pooled the items in advance of the sale.

If the seller has not claimed allowances and declines to do so, there is no right of tribunal to settle the dispute. Failure to address this issue at the time of the property transaction may cause thousands of pounds worth of relief being lost. It could affect future negotiations on the disposal of the property, too. If there are no allowances available for the future purchaser, they could drive a harder bargain over the price that they are willing to pay for the property.

These changes only deal with fixtures bought by the previous owner since April 2012. There can be disparity between what the seller can claim and what the buyer can. In some cases, there will be integral features that the seller was never able to claim but the purchaser can. Again, the amounts involved are often significant, so it is worth ensuring that complete capital allowance history is established as part of pre-contract enquiries.

To summarise, despite the significant values that can be involved, business owners and investors still overlook this valuable relief. A capital allowance review is a worthwhile exercise and will invariably unlock substantial tax relief. Typically, the cost of the review will be less than the tax saved in year one, with further tax savings being achieved in subsequent years.

Ben Chaplin is managing director of Taxwise