20th March, 2014
This is a reminder that changes introduced by the Finance Act 2012 are coming into force in April 2014.
Capital allowances permit the cost of certain plant and machinery fixtures to be written off against the profits of a business. When a commercial property is sold the fixtures are bought by the buyer.
From April 2012 if the owner of a commercial property has claimed capital allowances, a value for those fixtures must be established within 2 years of the transaction.
From April 2014, plant and machinery capital expenditure has to be grouped into different pools depending on the rate of written down allowances claimed.
The main pool will comprise expenditure on most qualifying items and the rate of allowance is 18%. The special rate pool includes certain assets designated as ‘integral features’ where the expenditure was incurred in respect of them on or after 1 April 2008 and the rate is 8%. Certain short life assets form single asset pools.
Pooling the assets in this way can only apply where a seller is entitled to claim capital allowances. It will not apply if your business is a charity or pension fund and is therefore not within the charge to tax for example.
In order for buyers to claim capital allowances from April 2014, a seller must have “pooled” its fixtures expenditure. If a buyer wants to claim allowances where the seller has not done so, the seller will need to pool its expenditure.
Buyers may therefore be seeking wording in the contract that the seller will do this. Specialist capital allowances advice will be needed by the seller and there needs to be a discussion as to whether or not the buyer or the seller will pay for this. If the seller has not claimed capital allowances and does not want to do so or pool its expenditure, capital allowances will not be available which may in turn affect the market value for the property.
Alternatively, if the seller was not entitled (for example because it is a charity or pension scheme or a developer holding the property as part of its trading stock) then a buyer may be seeking information relating to the earlier periods of ownership. Information should be obtained from earlier sellers so as to preserve the capital allowances and the value of the property.
This is a highly technical area and specialist advice should be sought.
Enquiries raised before contract will be more wide reaching where capital allowances are concerned. The buyer will want to know if they can claim capital allowances and, if so, at what rate.
For more information on capital allowances or other related matters please contact Emma McGlinchey on 01244 405567 or email [email protected].