Capital allowances and fixtures

Capital allowances are an amount of money that a business can deduct from their taxable profits. If a company was to buy a qualifying asset for their premises, they are able to claim capital allowances on that disbursement (known as capital expenditure).

When a buyer purchases a property, they don’t just attain the building and the land, they also acquire the properties fixtures. This means that on a purchase of a property, a taxpayer may be able to  claim capital allowances on the value paid for qualifying fixtures. Capital allowances may  also be claimed on:

  • Types of building improvements and renovation
  • Assets that are used and owned in the business
  • Certain types of machinery which are used for business functions

Capital allowances can be claimed by companies, sole traders and trading partnerships, landlords and occasionally employees.

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Laws surrounding capital allowances

Prior to the Finance Act 2012, the sale contract of a commercial property did not have to deal with capital allowances. The value of the fixtures could be up for agreement between the buyer and the seller.

From April 2012, the new rules introduced the fixed value requirement. This is when the buyer and the seller need to agree an amount of money to the building’s fixtures, within two years of the property sale, by either:

  1. Entering into an section 198 election
  2. Applying for a judgement by the first-tier tax tribunal

In April 2014, the latest part of the legislation that was introduced was ‘pooling requirement’. Before the commercial property is sold, the seller must pool together the amount spent on fixtures. This must be done by either:

  1. informing the HMRC of the disbursement
  2. claiming for capital allowances.

A failure to deal with capital allowances in the sale contract may lead to the  buyer being unable to claim for capital allowances. In the eye of a buyer, this may devalue the property and make them defer from making an offer.

With the introduction of the new legislation, buyers will now need a complete capital allowances history on the property. This will include details of all previous owners’ claims, details of the seller’s tax returns and information on any capital contributions that have been made to tenants.

Capital allowances are now seen to be an important factor in a commercial property sale and cannot be left until after the property transaction. Without the issue being addressed prior to any sale, the buyer and its successors may not be able to claim capital, this could also affect the chances of selling the property and the price obtained in the future.

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