The capital allowances legislation undergoes an annual transformative process according to the whims and policy of those in Government and whilst many of the amendments equate to nothing more than tinkering to rates and dates, every once in a while, the legislation is overhauled in such a way to flummox advisors and taxpayers (and sometimes HMRC) alike.
The amendments in Finance Act 2012, helpfully titled ‘capital allowances for fixtures’ have completely changed the capital allowances process during commercial property transactions from one where applying status quo was a safe option to the option which could potentially cost ill-advised sellers and buyers dear.
The relevant legislation was reproduced to s.187A & s.187B of the Capital Allowances Act 2001 and the new rules are already in place for commercial property transactions undertaken after 1 April 2012.
The key points to consider are:
- Capital allowances must be transferred using methods outlined in the new rules. If the rules are not adhered to, the transfer value to the buyer and all subsequent buyers will be NIL.
- If a seller was entitled to capital allowances but decided not to ‘pool’ the items, the value of the capital allowances for the buyer and all subsequent buyers will be NIL. Therefore, whilst previously, a ‘do nothing’ approach could have secured best value for a buyer, if this approach is applied to transactions after April 2014, the buyer will potentially lose entitlement to all capital allowances in the property.
- The rules have the greatest effect when a taxpayer is involved in a transaction (either buying or selling). However, entities that cannot claim capital allowances such as pension funds, charities and property developers should also act to protect the value of their properties.
- Claims for capital allowances on qualifying expenditure of prior years may still be made, but these may be limited when a property has changed hands after 1 April 2012.
- The capital allowances due diligence procedures including the interpretation of CPSEs, drafting heads of terms, contracts and associated documents must be updated to protect the positions of buyers and sellers.
Gateley Capitus has been involved with the Treasury and HMRC process for drafting the new legislation and we are best placed to interpret and apply the legislation, whilst initiating the appropriate planning to secure the best result for parties.