Capital allowances are available to any persons and companies that incur capital expenditure, including the purchase of commercial property. They enable a person who purchases a qualifying asset to deduct a proportion of the cost of the asset each year as an expense in the calculation of income profits. The rate of the allowance varies according to the nature of the asset.
The Finance Act 2012 introduced a mandatory pooling requirement two years ago (April 2014) which prevents a buyer of commercial property from being able to claim any capital allowances on integral fixtures within a property unless the seller has first brought their costs, and then a disposal value, into their tax calculations.
Two years since the mandatory pooling requirement was introduced enquiry 32 of CPSE 1 which invariably needs to be completed by a seller at the very start of the process of selling a commercial property is still regularly left unanswered, or is answered inadequately prejudicing both seller and buyer. The information necessary to assess the potential value of entering into a Capital Allowances Election must be provided/sought right at the start of a transaction to avoid delays and/or pressure to complete without properly addressing the matter at a end of a transaction.
The mandatory pooling requirements mean that it is essential that on completion of a transaction the seller and the buyer enter into a Capital Allowances Election and in order to do so the information requested of the seller needs to be provided. If it isn’t then both the seller and the buyer are disadvantaged. A buyer will be unable to claim allowances and the seller might need the approval of the buyer to make a claim post-completion which might not be forthcoming.
The value of capital allowances is no small change. The Law Society recently estimated based on analysis of transactions that completed between 1 April and 31 December 2014 that buyers and sellers have missed out on an opportunity to claim £1.6 billion through neglecting to properly address capital allowances.
For further information or advice please contact our commercial team.