Identifying capital allowances can add significantly to cash flow benefits for profitable businesses. Proposed legislation changes the process for claiming capital allowances on fixtures that, if implemented, will increase compliance pressure on property transactions from April 2012. Property investors should be reviewing now the capital allowance attributes of their properties and compliance processes around renovations and improvements, as a matter of priority.
Who can claim and how does the process work?
Any company or business that has purchased property as a fixed asset may be eligible. The capital allowance regime allows for tax relief on certain capital expenditure. There is also an opportunity to make claims for capital allowances in respect of a category of expenditure called 'integral features' of a building. Integral features include electrical systems and cold water systems and have wide application. Claims cannot be made for residential property, though common parts of such properties may qualify.
For properties purchased by a company on or after 1 April 2008 (or 6 April 2008 for an unincorporated business) and which were owned by the seller prior to those dates, the seller was unable to claim capital allowances on certain categories of what are now integral features. Consequently it is open to the purchaser to establish if there is qualifying expenditure and if so make a claim. From April 2012 purchasers will require documentary evidence of the tax value of any fixtures which the vendor has pooled, in order to claim capital allowances. It will no longer be possible to determine the value of such fixtures for capital allowances after the date of sale without undertaking an agreed compliance procedure. In order to claim capital allowances in respect of second hand fixtures in properties acquired from April 2014, a purchaser will require documentary evidence of the tax value of fixtures on which any previous owner was entitled to claim capital allowances.
Implications
From April 2012 if fixtures qualifying for capital allowances are not appropriately identified, there is a risk that all future owners will be unable to claim allowances. Act now to benefit the existing business and enhance property disposal values – this opportunity really should not be overlooked.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
