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

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter

Subscribe

Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575

or

Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW