Identifying capital allowances can add significantly to cash flow benefits for profitable businesses. Legislation that was introduced in 2012 changed the process for claiming capital allowances on fixtures. That change increased compliance pressure on property transactions from April 2012. A further restriction became effective for transactions from April 2014 where the vendor has to have pooled qualifying expenditure for a purchaser of second hand fixtures to be able to claim capital allowances on those fixtures. If they have not already done so, property investors should be reviewing the capital allowance attributes of their properties and compliance processes around renovations and improvements, as a matter of priority. Claims may not be limited to having to have been made in 2014 and the potential for claims for periods post April 2014 should be investigated.

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. If an unconnected purchaser can establish there is qualifying expenditure on such integral features not claimable by any previous owner they will be able to make a claim. (the claim will be based on an apportionment of the property purchase price). Since April 2012 purchasers have been required to obtain documentary evidence of the tax value of any fixtures which the vendor has pooled, in order to claim capital allowances. A further restriction came into force on 1 April 2014 so that, except in very limited circumstances, if the vendor of second hand fixtures has not pooled expenditure qualifying for capital allowances, the purchaser is unable to claim allowances going forward – advice should be sought.

Implications

From April 2012 if fixtures qualifying for capital allowances are not appropriately identified, and from April 2014 if qualifying expenditure is not pooled, there is a risk that all future owners will be unable to claim allowances. Discuss with us now to:

  • benefit an existing business;
  • enhance property disposal values;
  • optimise value on disposal;
  • this opportunity really should not be overlooked.

The Financial Conduct Authority does not regulate all of the services or products discussed in this publication.