Capital Allowance Claims for Fixtures in Second Hand Properties

April 2012 and April 2014 changes to tax law have considerable impact on property transactions which, if ignored, can lead to wasted tax relief.

Since 1996 the extent that a purchaser of commercial property can claim capital allowances on assets within a property has been limited to the disposal value brought into the tax computation by the vendor, or by a previous owner. Purchasers have therefore had to make enquiries into the property’s capital allowance history.

The above led to the introduction of a joint election between the purchaser and seller that state the amount of the sales price that is apportioned to fixtures. The amount specified in the election cannot be greater than the vendor’s costs of the fixtures. Typically purchasers would wish the sum to be high and vendors wish it to be low. The election is often one of the more emotional aspects of purchase negotiations.

The election only covers assets subject to claims from 1996 onwards. This does not prevent purchasers of older buildings identifying assets on which a claim has never been made and making a “late” claim on those assets installed within the building before 1996.

The Finance Act 2012 changes the administrative processes and scope for tax planning.

At present, the joint election is good practice. From April 2012 it is mandatory for the value of fixtures being transferred to be identified. If a joint election is not used then the only alternative is that the Tax Tribunal process determines it for the parties. From April 2012 it has been important that there is certainty as to the transfer value as, unless the value of fixtures is determined, the purchaser (nor any future purchaser) is prevented from making a capital allowances claim on those fixtures.

From April 2014 capital allowance claims will only be possible to the extent that assets have been subject to an earlier claim. This will lead to owners having increased documentation requirements to substantiate claims and purchasers seeking sight of that evidence during the commercial negotiations. A further impact is that it will prevent late claims for pre-1996 expenditure. Taxpayers therefore have until March 2014 to make the first ever claim on pre-1996 property expenditure.