Claiming capital allowances on the acquisition of a building

When a commercial building is acquired it will invariably include an element of plant and a value should be established on this element in order that valuable capital allowances are claimed.

Establishing values on a purchase can be complicated as the acquisition may relate to a number of assets.  These could be:

  • Land & buildings – which may not qualify for capital allowances
  • Fixtures -  qualify for capital allowances but under separate rules
  • Qualifying plant – upon which allowances have been claimed
  • Qualifying plant – upon which allowances have not been claimed
  • Plant which may not originally have qualified upon acquisition (integral features)

The plant value is usually calculated using two methods:

  • A just and reasonable apportionment of the sale & purchase price.  This is a specialist tax valuation exercise.
  • An election entered into by the buyer and the seller to jointly agree the value of the plant fixtures.

Tactical considerations

Sellers will generally seek to agree that an election will be made and then negotiate as low a disposal value as possible.  Two commonly proposed amounts are:

  • Tax written down value – this permits the seller to keep the benefit of allowances already claimed.
  • £1 – even better for the seller as it permits retention of practically all of the future tax benefit.

If the buyer is persuaded to go down the election route then they should negotiate as high a value as possible, an election at anything less than the vendor’s original claim is not advisable unless adequate compensation is received elsewhere in the deal.

It should be noted that an election is not mandatory and under new rules introduced from April 2012 (to be tightened further from April 2014) an alternative would be for either party to unilaterally refer the matter to a First Tier Tribunal for an independent determination.  The Tribunal is obliged to apply statute and, if the purchaser presents their case properly, this should result in the just and reasonable apportionment rules being applied.  This is likely to benefit the purchaser.

HMRC has indicated that a tribunal application and hearing is not something which should be feared.  It should be noted that an election or appeal to the first tier tribunal must be made within two years of the property purchase completion date otherwise allowances may be lost.  This places the onus on the purchaser.

Armstrong Watson’s team of capital allowances specialists are available to ensure that property purchasers identify and optimise plant claims where commercial buildings are acquired.

Andrew Mitchell, Partner, Skipton and Leeds

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