Accountants need to be aware of the changes taking place from April 2014.
The Finance Bill 2012 introduced new rules into the Capital Allowances Act which resulted in the addition of Sections 187A & 187B to Chapter 14 (Fixtures) of Part 2 (Plant & Machinery Allowances). Accountants need to understand how these changes will effect their client’s capital allowances position when they come to sell the property. This is especially so given the nature of the changes taking place from April 2014
The Transition Period – April 2012 to March 2014
The first changes took effect from 1st April 2012 or 6th April 2012 for Corporation Tax or Income Tax payers respectively. Where a commercial property has been purchased by the “Vendor” before April 2012 and is being sold without a capital allowances having been claimed on any of the fixtures or integral features within the property then the legal position remains unchanged. That is to say that the “Purchaser” may make a capital allowances claim for qualifying fixtures and integral features based on “a just and reasonable apportionment” of the purchase price as defined in Section 562 of the Capital Allowances Act. This is of course subject to the other regulations within CAA2001 such as the “Purchaser” carrying out a qualifying activity or trade etc.
Where a Capital Allowances Claim has been made by the “Vendor” or a previous owner.
However where there has been a prior claim for capital allowances by the “Vendor” (or any previous owner) then the allocation of available capital allowances needs to be agreed between the two parties through the signing of a CAA2001 Section 198 Election Agreement. Although this S198 Election does not have to be signed before completion, it does have to be signed before two years has elapsed from the completion date. If the parties cannot agree upon the allocation of capital allowances in this way either party may refer the matter to “The First Tier Tax Tribunal” for adjudication. A failure to agree the allocation either by negotiation between the parties or by failing to refer the matter to the First Tier Tribunal within the two year time frame will result in capital allowances not being able to be claimed by the not only the “Purchaser” but any subsequent purchaser. This means that a failure to deal with the capital allowances position adequately by the parties could result in the property being devalued in the eyes of any subsequent buyer.
April 2014 onward
Where a property is being sold after March 31st 2014 by a Corporation Tax payer or after April 5th 2014 by an Income Tax Payer the issue of dealing with capital allowances becomes even more critical. This is because if the issue is not dealt with before completion the “Purchaser” and any subsequent purchaser will have lost the right to claim capital allowances.
To add a further complication into the mix the “Vendor” must “pool” the capital allowances before they may be transferred to the “Purchaser” by means of a signed S198 Election Agreement . This may not cause a problem where the “Vendor” (or previous owner) has already made a full capital allowances claim but where they have not it would normally require “a S562 just and reasonable apportionment exercise” to be undertaken. This change in legislation reflects the Governments stated aim that a tax election agreement, where relevant, shall become the norm in property transactions.
Where the issue is not dealt with prior to completion the right to claim capital allowances will have been lost. This could well have an effect on the future value of the property when the “Purchaser” comes to try and sell it.
What should Accountants do now?
Given the changes to the legislation we think that the logical conclusion is for Accountants to ensure that where their client’s who have purchased second hand commercial property, developed second hand property or built new property they ensure that all possible capital allowances have been claimed. As there is a need to establish the value of the qualifying “Plant and Machinery Capital Allowances” through a “just and reasonable apportionment” we recommend using the services of Capital Allowances Specialists such as ourselves.
We are happy to give free advice and answer any questions an accountant or their client may have. An estimate of the tax benefits which could be realised by undertaking a capital allowances claim can be estimated before a claim is undertaken by completing a “High Level Review” request.
This post has been a brief summary of the changes to the legislation aimed to inform accountants of the need to take action if their clients are to benefit from a capital allowances claim i.e. not find themselves in a position of a potential “Purchaser” of their property getting the full advantage of all claimable capital allowances. There is no downside to making a capital allowances claim.