Capital Allowances Advice for Solicitors

An opportunity for your clients?

We are happy to provide introductory fees, if appropriate to do so, ensuring that you benefit for any assistance your firm may provide. If your company does not require an introductory fee, we will consider to pass on the financial benefit as a saving to your client when negotiating our performance related fee level.

Recent Legislation Rules and their IMPACT.

Following the Budget 2012, new rules have been introduced governing capital allowances which have an impact both now and from April 2014 for anyone dealing with commercial property.

The changes are summarised as follows:

  • We have progressed through a transitional period in terms of the legislation on capital allowances. On 1 April 2012 the rules on capital allowances changed, and have changed again from 1 April 2014.
  • The new rules introduced a mandatory pooling requirement and a fixed value requirement.
  • The fixed value requirement requires the seller and buyer of a commercial property to negotiate a joint election under s198 or s199 CAA 2001 as to the proportion of the purchase price which is dedicated to the fixtures.
  • The pooling requirement means that for the purchaser to claim capital allowances the seller and any previous owners must have pooled the expenditure.
  • The new rules mean that more complete tax elections and a proper capital allowances history of the property is required if a property is to be bought or sold without losing the benefit of capital allowances.

SUMMARY

As a result of the recent legislation changes, if you are dealing with commercial property purchases and sales, your clients could miss out on claiming capital allowances forever if they are not dealt with at the point of sale.  It is therefore vital that your clients obtain specialist tax advice.

  • Capital Allowances are a form of tax relief available when a person incurs capital expenditure, usually through buying, refurbishing or building a commercial property.  It is advised that anyone dealing with commercial property should have an understanding of capital allowances to ensure their clients are not missing out on something which is their entitlement.
  • Capital Allowances are available on certain elements of a commercial property. Examples include, but are not limited to, kitchens, heating installations, sanitary systems, hot water systems, fire alarms, air conditioning and lifts.
  • Retrospective claims on property owned for a number of years where capital allowances have not been claimed at the time of purchase are possible and can be made in any open tax return as long as the asset is still owned at any point during that tax year.
  • Commercial property owners can be entitled to significant tax savings by making Capital Allowance claims, are your clients missing out?
  • Section 19 of CPSE1 should not be ignored.  There is a duty to make sure your client is being provided the appropriate advice.

IMPORTANT DATES

Sales before 1 April 2012

  • Previous rules apply.

Sales during the transitional period (from 1 April 2012 to 31 March 2014)

  • The Pooling Requirement doesn’t apply; but
  • The Fixed Value Requirement or Disposal Value Statement Requirement needs to be satisfied where the seller has claimed capital allowances.

Sales on or after 1 April 2014

  • The Pooling Requirement is necessary, in addition to the Fixed Value Requirement.
  • The main consequence is that if the seller could have claimed allowances, then allowances will be denied to the purchaser (and any subsequent owner) unless the expenditure on fixtures was pooled, in addition to a joint election.

WHAT SHOULD YOU DO WHEN ACTING FOR A CLIENT WHO IS PURCHASING A COMMERCIAL PROPERTY?

The most important advice is not to ignore the issue – your client could be losing out.

If you client is a tax payer then capital allowances could be beneficial.

Advice for solicitors would be to:

  1. Check whether your client is aware of capital allowances.
  2. Undertake due diligence on any prior claims at pre-contract stage by engaging the services of a capital allowances expert.
  3. Raise the necessary pre-contract enquires and review the answers provided in Section 19 of CPSE1.
  4. Once the position regarding capital allowances has been established, the appropriate clauses will need to be included within the sale contract to ensure that your client’s interests are best protected.

WHAT SHOULD YOU DO WHEN ACTING FOR A CLIENT WHO IS SELLING A COMMERCIAL PROPERTY?

Vendors will be expected to provide full information on the availability of capital allowances on the sale of a property.

If this information is not available, there is a risk that the purchase price will be reduced accordingly to reflect the value of the capital allowances to the purchaser.

It is vital that your client obtains expert advice before disclosing the level of capital allowances which could be available to the purchaser. Failure to provide the necessary information could result in the sale falling through.

Service Offering

  • To identify eligible capital allowances claims, the role falls somewhere between an accountant and a surveyor. Understanding both the tax legislation and valuation principles are necessary to identify the opportunity.
  • An initial feasibility study would be needed to ensure that there is scope to make a capital allowances claim.
  • Assuming a claim was possible a survey would be carried out on the property to identify and value all qualifying items. A report would be produced and sent to HMRC. Fees are normally charged on contingent basis.
  • Roger Hannah & Co in Partnership with BDO are able to offer this service.

SUMMARY

1st April 2014, consequence to ignoring the new legislation.

The issue of capital allowances cannot simply be ignored when purchasing / selling commercial property.  It is not sufficient to gloss over S.19 of CPSE1 enquiries anymore.

It is important that your clients, whether they are vendors or purchasers of commercial property, obtain expert Capital Allowances advice as early as possible in the transaction.  Failure to obtain the necessary advice could lead to delays in completing the sale / purchase of a property or potentially losing the sale / purchase altogether.

Further Information | 0161 429 1662

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