Capital Allowances on Fixtures to Buildings

The new rules that apply to claims for capital allowances on fixtures to buildings are now in place.

Whether you already have business premises or are in the process of purchasing new or second hand premises, let us help you to protect your entitlement to tax relief.

Pending and future purchases – Do not assume it is “covered”

Do not assume your legal advisers will fully address your claim for capital allowances.  The rules are complex and legislation has changed, which means that if not considered before the deal completes, there is a risk that the benefit of any future capital allowances could be lost forever.

Rules where capital allowances have previously been claimed

Since April 2012, for assets purchased for which a capital allowances claim has previously been made, purchasers are only entitled to claim based on a ‘fixed value’.

‘Fixed values’ can either be agreed with the seller by way of a formal joint election that identifies all the relevant assets or, if the parties are unable to agree, either party can refer the question of valuation to a tribunal.

In either case, if a value has not been fixed within two years of the date of sale, the purchaser and any subsequent owner is not entitled to claim capital allowances on the assets in question at all.  Not only will this mean that you lose out when you purchase the premises, you will also lose the added benefit of negotiating terms when it comes to sell the premises.

By way of illustration, the summary below shows the total capital allowances available to a seller and a purchaser on qualifying assets which originally cost the seller £500,000.  The three potential scenarios are as follows:

1. Where a formal election is agreed between the seller and purchaser for £250,000;
2. Where a tribunal decides the fair and reasonable value in the absence of a formal election to be £150,000; and
3. Where there is no fixed value.

	Formal Election (£)	Tribunal (£)	No fixed value (£)
Fixed value for fixtures	250,000	150,000	None
	Seller	Seller	Seller
Qualifying expenditure	500,000	500,000	500,000
Disposal value	(250,000)	(150,000)	(nil)
Total allowances for the seller	250,000	350,000	500,000
	Purchaser	Purchaser	Purchaser
Qualifying expenditure for the purchaser	250,000	150,000	nil

As can be seen, the amount of the fixed value makes a substantial difference to the allowances available to both the purchaser and seller and although going to a tribunal can provide a fixed value, the parties will lose control over the value determined and could bear significant costs in doing so.

It is in the interests of both purchasers and sellers to seek to agree a fixed value by election as part of the sale process when buying or selling any property on which capital allowances are available.

Rules where no capital allowances have previously been claimed

Up to April 2014, these rules did not affect circumstances where there are qualifying assets on which no capital allowances have previously been claimed by the seller or any previous owner.  However, further changes to the rules from April 2014 will restrict the ability of purchasers to claim capital allowances on second hand buildings, even where no claim has been made by a seller or previous owner.

Capital Allowance reviews

You don’t have to wait to purchase or sell a property to obtain the tax relief you are entitled to.  A simple review of your historical expenditure now could give rise to significant added tax relief, which may have been missed in the past.

If you would like to discuss your entitlement to claim capital allowances on fixtures to buildings please do not hesitate to contact Sarah Seavor on 07712 218540 or sarah@seavorchartered.co.uk.