Business Tax, capital allowances, Personal tax, Property, Tax Planning, Tax Relief

Important update to capital allowances for commercial property investors

By Lesley Stalker

If you own commercial property that you may wish to sell in the future; or if you wish to purchase commercial property there are some important changes to the capital allowances rules, of which it is essential to be aware. Not taking into consideration the changes, which came into effect from 1 April 2014, could negatively affect a future sale price of the property, if not the ability to sell the property at all. It could also result in losing out on a claim for capital allowances and the ensuing tax relief going forward.

For example, a seller who has not made adequate provision to comply could find the buyer could try to negotiate a reduced price to counter the implications of not being able to make future capital allowance claims. Equally, a buyer not aware of the new requirements could find they are unable to claim the tax relief they anticipate because of their failure to understand the latest legislation. Alternatively, the deal might be delayed if the buyer identifies that the relevant assets have not been ‘pooled’ prior to the acquisition.

How have capital allowances rules for property changed?

The legislation concerning fixed plant or fixtures in a property (e.g. embedded systems such as lifts, heating, electrical systems) has been tightened and it is now mandatory for these assets to have been ‘pooled’ (ie identified and made the subject of a capital allowances claim) prior to the sale of the property.

The pooling of assets needs to be included in the sale/purchase contract and a failure to do this could mean losing the entitlement to claim capital allowances in the future. It is essential to be aware of this because many property lawyers are unaware of the changes and the tax consequences of not having the correct paperwork in place.

What steps should property investors take?

If you are considering buying commercial property or wish to sell, it is important to have relevant assets pooled in advance of the transaction and for buyers, adequate provision needs to be included in the contract to secure future capital allowance claims. This is a specialist area and it is worthwhile seeking professional advice to ensure the future value of potential claims for capital allowances can be maximised.

For more information on claiming capital allowances please contact Anne Eager by emailing ae@rjp.co.uk.

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