If so, please talk to us before you sign the deal as certain aspects of the tax law changed in April 2012. Failure to raise some matters with the vendor until after the purchase may make the task of maximising entitlement to plant capital allowances very difficult.
What opportunities are there for claiming plant capital allowances?
If you buy a freehold or leasehold interest in a commercial building, plant capital allowances may be due to the extent that part of the purchase price can be ascribed to fixtures. This is in addition to any plant capital allowances which may be due on moveable items of furniture which are not classed as fixtures. A fixture is an asset which is installed in a building so that it becomes part of that building or land in law, for example a central heating system. Other examples of fixtures include:
- Hot and cold water systems
- Electrical systems
- Sanitary ware
- Air conditioning.
Where a building containing second hand fixtures is purchased, the normal rules provide that a ‘just and reasonable’ apportionment should be made in order to determine the part of the purchase price of a property attributable to fixtures. This apportionment may result in a significant proportion of the purchase being tax deductible through the capital allowances system. Yet this may not have even been considered until after the building had been purchased.
There are anti-avoidance provisions which may limit the allowances to a lower figure. The basic aim of these provisions is to ensure that allowances given to the historical and current owners of the property do not exceed the original cost of these fixtures when they were first installed in the building.
Where the vendor has claimed capital allowances for the fixtures within a property then the vendor and purchaser may negotiate a value (within limits) and jointly elect for that value to be the purchase price of the fixtures. This is called a s198 election.
HMRC believed that the anti-avoidance provisions have not necessarily achieved their aims and therefore introduced new measures some of which came into effect in April 2012.
What are the new measures?
The measures now in force can result in a purchaser not being entitled to any capital allowances on fixtures if certain conditions are not satisfied.
Where the previous owner has claimed capital allowances on the fixtures, the purchaser needs to now ensure that a transfer value is formally determined. In the vast majority of cases this will be done by satisfying the ‘fixed value requirement’ which will generally be achieved by a joint election, under s198, between the vendor and the purchaser.
A s198 election can be made within two years of the acquisition of the property. You may think that is plenty of time but what needs to be clarified with the vendor includes:
- identification of what fixtures which have been the subject of a claim to capital allowances, and
- agreement as to an appropriate value to include in a s198 election.
It is therefore essential to obtain from the vendor details of the fixtures which have been the subject of a claim to capital allowances. It is in respect of these items that a purchaser needs to ensure that he can satisfy the ‘fixed value requirement’. Negotiating with the vendor before the purchase may often be better than trying to obtain the co-operation of the vendor after the purchase.
Also, what may be revealed in the obtaining of this information pre-contract is that no allowances have been claimed on other eligible fixtures. Armed with this knowledge a purchaser may be able to submit capital allowances claims on these fixtures after the purchase of the property.
The central message, we hope, is clear. Let us help you before the purchase of the property rather than attempting to extract information from the vendor many months after the purchase.