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Commercial property transactions

Capital allowances and property sales/purchases

Everyone has felt the heavy thud of disappointment that comes from seeing their earnings cut down by tax. For businesses the profits lopped away can make the difference between a good year and a bad; and eventually between hiring and firing. Capital allowances can offset the depreciation of some of the most significant capital expenses against tax - and that makes them extremely valuable.

  • What they do

      Capital allowances are a relief applicable to certain items of plant and machinery, eco-friendly adaptations and physical structures. For example if you have refurbished your offices, or fitted new lifts in your building then you may be eligible to offset the depreciation of those items year on year against your taxable profits. Your accountant will be able to advise you as to what is and what is not eligible for the allowances.

  • Sales and purchases

       If you are selling a property you can use potential capital allowances as a selling point. What sensible buyer wouldn’t be enticed by the chance to recover part of the purchase price? As a purchaser your solicitor will send over a set of standard enquiries to the buyer’s solicitor before a purchase which request capital allowances information amongst other things. Traditionally a seller who hasn’t dealt with their capital allowances position could simply gloss over this by saying they hadn’t been claimed or that they didn’t know; but the rules will soon change and buyers will insist on this information in full and up front.

  • The rules

      In 2012 the rules changed and now the buyer and seller have to make a specific tax election (which can only be done if the seller has actually claimed the allowances), or go to the tax tribunal within 2 years of the purchase. This generally means that a seller has to get their tax in order, and potentially go to HMRC and adjust their previous returns in order for the buyer to be able to claim the allowance.

      From April 2014 a seller will also need to “pool” their fixtures expenditure into the right categories and inform HMRC before the property is sold, even if they do not want to claim the allowances. They will need to evidence this to the buyer before the sale.

  • The future

      Buyers will no longer be able to claim capital allowances if the arrangements are not made before a sale. A seller will have to give full answers to a buyer’s enquiries, and have arranged the pooling and value fixing required by the new regulations in advance. Contracts for sale can no longer remain silent on capital allowances. This means there will be pressure on sellers to get these issues sorted long before the sale actually goes through. This does potentially raise sale costs, as sellers will need specialist tax advice. However it should be remembered that in exchange for that early effort sellers can use the allowances both as a selling point when marketing the property and as a useful bargaining chip when negotiating the sale price.