Wilmslow Tax Solutions

Wilmslow Tax Solutions is the rebranded name of Capital Allowance Claims Ltd.

Wilmslow Tax Solutions is a trading style of Wilmslow Wealth Management.

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Capital Allowances for Fixtures

The New Rules

New Legislation "Effect of Changes in Ownership of a Fixture". Section 187A Capital Allowance Act 2001.

New legislation concerning plant and machinery fixtures in commercial buildings from April 1st 2012 or April 6th 2012 (for corporation tax and income tax purposes respectively) now mean that capital allowance tax reliefs have to be dealt with at the point of transfer of ownership of the property. Failure to do so in certain scenarios may lead to the new buyer losing some or all rights to these valuable tax reliefs.

Why are Capital Allowances Important?

Plant and machinery capital allowances in commercial buildings can be significant. Ranging from 5% to 40% of the original property purchase price.

Example: A company, paying Corporation tax at 20%, buys a commercial office block for £5 million. It is calculated that 25% of the price paid for the property qualifies for allowances as either general fixtures or integral features. Allowances are therefore due on £1.25 million of expenditure. At 20% tax rates those allowances are potentially worth £250,000 which is 5% of the purchase price.

Failure to secure these allowances or claim them correctly can be a costly mistake for buyers acquiring commercial property.

The Background

HMRC began a consultation period from 31st May 2011 to the end of August 2011 to review capital allowances on fixtures in buildings and the problem of multiple claims. The consultation paper clearly outlines the reasons for the legislation changes:

"The proposals are aimed at preventing allowances from being given more than once on the original cost of a fixture".

Going on to further explain:

"This review of capital allowances for fixtures is being carried out because of an awareness of defects in the current rules, which are being used in a way that undermines the policy purpose of the legislation. These defects allow tax to be avoided by (a) the obtaining of allowances on more than the original cost of fixtures and (b) through the acceleration of allowances on fixtures – both contrary to the policy intent".

This has led to new rules and unless these new rules are implemented correctly the opportunity to claim allowances may be lost and situations may arise where no tax reliefs are given at all.

What are the Changes?

Firstly, it is important to point out that from April 2012 to April 2014 there is a transitional period in which some but not all the new rules are mandatory. This means for the next two years different scenarios relating to:

  • No previous claims
  • Partial claims; or
  • Full claims

Will need to be treated differently to post 2014 when all the new rules become mandatory.

The new rules involve two key areas. Firstly, the need for the seller (if prior claims have been made) to put a disposal value for the plant and machinery fixtures claimed in their accounts on the sale of the property. This has to be agreed with the buyer in a section 198 or 199 election if the buyer is to continue to claim the capital allowances. This is called the ‘Fixed Value Requirement ‘ and it is a mandatory rule even during the transitional period.

The second rule change is called the 'Pooling Requirement' and it involves the seller having to pool all available allowances and negotiating them with the buyer in order to then agree and meet the 'Fixed Value Requirement'. This rule is not mandatory until after April 2014.

Implications to Sellers and Buyers

For all commercial property transactions moving forward capital allowances need to be addressed at the point of sale unless no prior claim has been made and it is still in the transitional period. For all other scenarios such as partial claims and full claims capital allowances need to be discussed and section 198 or 199 elections agreed.

Post April 2014 all capital allowances will need to be pooled by the seller and will need to be agreed with the buyer in a section 198 or 199 election regardless of the scenario.

Wilmslow Tax Solutions

If you are in the process of buying or selling a commercial property and need advice and guidance on capital allowances to make sure your position is maximised and protected then Wilmslow Tax Solutions can assist you in the following areas:

  • Pre negotiation advice and guidance
  • Appraisal of the current capital allowances claimed and estimation of remaining allowance available
  • Production of full capital allowance plant and machinery valuation reports
  • Contract negotiations and Section 198/199 election advice

Call now and ask to speak to one of our capital allowance tax consultants on 01625 535456 or email on info@wilmslowtax.co.uk

Wilmslow Tax Solutions is a specialist capital allowance surveying and tax consultancy specialising in plant and machinery capital allowance tax reliefs.

 

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If we can’t find more than £25,000 of capital allowance claims we will not charge a fee!

If you want to know more about our pricing, please contact us.