Capital allowances are a form of tax relief against some types of capital expenditure. Not all assets qualify and the most common type of allowance available is on plant and machinery.

Questions about capital allowances often arise in the context of a sale and purchase of a commercial property. The most commonly used form of enquiries (Commercial Property Standard Enquiries) ask a seller a number of questions designed to elicit information for the buyer as to whether there is qualifying plant and machinery on which capital allowances might be claimed.

Capital allowances are optional and must be specifically claimed. If not claimed they can be used in a future period so it can be open to the buyer to make a claim on assets acquired as part of a property purchase.

It is very common for a seller to try and answer capital allowances enquiries without their accountant’s input. This brings a risk that misrepresentations are given for which the seller will be liable to a buyer. It also brings a risk that the seller fails to address capital allowances on a sale in order to make sure that they either preserve the ability to claim any available allowances post-completion or reflect the allowances that will be available to a buyer in the sale price. Not all accountants will specialise in capital allowances so it is often prudent to seek a tax specialist’s advice to supplement a regular accountant’s expertise.

On receipt of replies to CPSE enquiries a buyer will often find that a seller either states that capital allowances are ‘not applicable’ or that the seller wants the buyer to enter into a capital allowances election (a section 198 or 199 election) to state that the disposal value for qualifying plant and machinery is £1.

Whatever the information provided, it is important for a buyer to seek advice from an accountant who specialises in capital allowances claims. Failure to do so risks the loss of a valuable form of tax relief. Even if not applicable to a buyer (such as a pension scheme), available allowances might be of benefit to a future owner and could be reflected in a future sale price.

If you are buying or selling commercial property, our experts at Farleys can help. We can provide the legal advice you need and refer you to tax specialists who can advise you on capital allowances. Contact our commercial property team today on 0845 287 0939 or by email.