The changes, which will be effective from April 2014, affect purchasers of second-hand property that contain plant and machinery and may prevent purchasers and all future owners from obtaining capital allowances.Capital allowances are valuable tax reliefs on expenditure on plant and machinery. This includes building fixtures such as central heating, lifts and so on. Allowances are available at the “special pool rate” of 8 per cent on plant and machinery that is deemed by HMRC to be an ?integral feature? of a building, such as air conditioning. Plant and machinery classed in the HMRC?s designated “main pool”, such as security systems, attract a tax relief of 18 per cent. Two main obstacles The new rules present two significant obstacles ? the first is that, in nearly all property transactions, the seller and buyer must make a joint election agreement under s198 or 199 of the Capital Allowances Act 2001 on the value of the fixtures, or refer the matter to the First-tier Tax tribunal within two years of the transaction. The amount on which allowances are available will depend upon the price paid by the purchaser and the value agreed between the seller and the purchaser for the fixtures. If no election is made, or the matter is not taken to a tribunal, the purchaser will not be able to claim capital allowances on the plant and machinery acquired on the property purchase. Subsequent purchasers will also miss out on capital allowances. The second rule is called the “pooling requirement” by HMRC. The pooling requirement dictates that property vendors need to notify HMRC about expenditure qualifying for allowances in order for the purchaser to be able to claim fixtures allowances. The onus is on the buyer to demonstrate that both requirements are met. Failure to follow the new rules could deny allowances to the purchaser and to all future purchasers.? Change your sales contracts This spells change for sales contracts. These new rules mean that from April 2014 it will no longer be appropriate for a sale contract to be silent on value of fixtures, or for purchasers to leave capital allowances to be sorted out at a later date. Capital allowances will need to be considered as part of the purchase agreement. Under the new rules purchasers will need full information on expenditure qualifying for allowances made by the vendor and previous owners. Purchasers also need assurances that appropriate claims were made before they enter into an election with the vendor. If you are buying commercial property, make sure you are clear whether the seller has claimed capital allowances or not, as this will impact on your ability to claim capital allowances in the future, and potentially affect your property?s resale value. If you are planning a commercial property sale or purchase, you need to get a firm understanding of these new rules, and ensure that any contract of sale you enter into is drawn up so you don?t miss out on valuable capital allowance tax reliefs. Stacy Eden is head of property and construction, and Paul Fay is a corporate tax partner at national accountancy firm Crowe Clark Whitehill.
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