Commercial property buyers could be losing thousands of pounds in capital allowances and need to take a more pro-active approach when acquiring plant and machinery with buildings. The warning comes after this month’s Inland Revenue reform of the pooling allowance rules.
Under the new tax regulations capital allowances are only available to a purchaser of a building containing plant and machinery if the past owner has “pooled” what he spent on the equipment for capital allowance purposes while he owned the property. “If the seller has not claimed allowances, but was entitled to, the purchaser must ensure the seller agrees in the sale documentation to pool its expenditure,” warns Simon Toseland (above), a director at commercial property agents Prop-Search.
Valuable allowances can be lost if purchasers wait until after the acquisition of a building or, worse still, until they are completing their tax returns. “Property buyers must look into the capital allowance position before they acquire a property,” he stressed. “Buyers can no longer sit back and rely on getting specialist capital allowances advice after the event.”
Detailing the new pooling rules Adam Shakespeare, a manager at Isis Business Solutions, explained: “Capital allowances are valuable tax reliefs available in respect of expenditure on plant and machinery. This includes expenditure on integral features and the thermal insulation of the building.”
HMRC regard a fixture as an item of plant and machinery that is installed in or fixed to a building so as to become part of the building. “Allowances are available at eight per cent on plant and machinery that qualifies as an ‘integral feature’ — such as lifts and air-conditioning in a building — but at 18 per cent on other items such as moveable office partitioning,” adds Shakespeare. “In some cases, allowances can be available at 100 per cent for the purchaser of designated environmentally beneficial technologies.”
Any businesses acquiring property needs to agree a fair apportionment of capital allowances with the seller. “Some buyers may just have to take a pragmatic approach to the potential worth of capital allowances,” says Prop-Search’s Toseland. “The buyer of a 25-year-old building that has never been refurbished for example, may be more relaxed about the seller failing to provide any information about capital allowances than the buyer of a three-year-old property.”
The HMRC states that pooling will apply to property, other than new buildings, acquired by corporate taxpayers on or after 1 April, 2014, and for income taxpayers on property which is acquired on or after 6 April, 2014. This new requirement will be in addition to the fixed value or election requirement that has applied for property acquired since April, 2012, and must also be satisfied if a purchaser of “second-hand” fixtures is to obtain allowance.
For those selling commercial property the rules are different. Toseland suggests anyone disposing of property should take this opportunity to ensure, as part of their corporation tax compliance, that their April 2014 pooling evidence is correct. “Sellers should also be aware that buyers are likely to be more aggressive in negotiating on capital allowances,” he adds. “It will be interesting to see whether sellers, with records to prove their capital allowances position, can command a better price.”
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