Property Transactions

Capital allowances are an issue on virtually all property acquisitions and disposals.

There is a common misconception that if a property is relatively old, the capital allowances can’t be worth much. However, the value of capital allowances in a second-hand property is not a function of how old the property is. It is totally dependent on what the seller (and often, prior owners) have claimed during their period of ownership and how they have dealt with the capital allowances claimed on disposal of the asset.

For example, a 1960’s office constructed and always owned by a pension fund may generate far more in the way of capital allowances to a buyer than a brand new office constructed and owned by a Limited Liability Partnership comprising High Nett Worth individuals paying tax at the higher rate. This is because the pension fund could never have claimed capital allowances whereas it is likely that the LLP would have.

With the introduction of Finance Act 2012, the buyer could find themselves in the position of having no entitlement to claim capital allowances if the issue is not properly addressed at pre-contract stage. It is absolutely essential therefore, that investors, their solicitors and accountants have a complete change of mind-set with respect to this issue and take a much more pro-active approach if entitlement to often very significant amounts of tax relief is to be preserved.

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