Posted by James Pearson on 22 May 2014

New Pooling Requirements Limit Capital Allowances Claims

If you are planning on purchasing or selling a commercial property containing plant and machinery then you may be affected by the new rules regarding Capital Allowances (CAs) that has taken effect from 1 April 2014 for corporate taxpayers and from 6 April 2014 for income tax payers.

If you are planning on purchasing or selling a commercial property containing plant and machinery then you may be affected by the new rules regarding Capital Allowances (CAs) that has taken effect from 1 April 2014 for corporate tax payers and from 6 April 2014 for income tax payers.

If you are planning on purchasing or selling a commercial property containing plant and machinery then you may be affected by the new rules regarding Capital Allowances (CAs) that has taken effect from 1 April 2014 for corporate tax payers and from 6 April 2014 for income tax payers.

CAs are tax reliefs on expenditure on plant and machinery. They include items within commercial property such as lifts, air conditioning, and central heating. Capital allowances are available at 8% for fixtures that are “integral features” of a building, such as lifts, and 18% on other plant and machinery such as kitchen equipment.

The capital allowances available on a commercial property can be extremely valuable. The amount of relief that a second-hand purchaser can claim depends on the price paid for the property and the value of the fixtures, as agreed between the seller and the purchaser.

Legislation of Capital Allowances

The legislation regarding CAs is complex, and even experienced accountants may not have the specialist knowledge to maximise your claim, however, under the previous rules a claim could be made at any time and by any owner of the property, so long as those allowances had not previously been claimed.

New Pooling Requirements Limit

Under the new rules, a second-hand purchase of a commercial property can only obtain CAs on the plant and machinery within that property if the past owner has pooled the relevant expenditure in a chargeable period, when it owned the property. This means that if the CAs are not identified and pooled prior to disposal, then those allowances cannot be claimed in future. This can obviously have an effect on the value of the property being transferred.

Under the new rules, if the seller was entitled to claim CAs but failed to do so (and also failed to pool), the purchaser needs to secure agreement from the seller in the sale documentation to pool its expenditure. If this is not done prior to acquisition then all future purchasers can be prevented from claiming the CAs.

This means that it is also important for non-taxpayers to obtain the requisite information about CAs even though they themselves cannot claim the relief. If they fail to do so, the CA’s won’t be available to subsequent purchasers, which will reduce the property’s value.

Purchasers of commercial property will need to ensure that records or confirmations of pooling are included in acquisition documents as they won’t be able to obtain CAs if the qualifying expenditures are not accounted for at the time property changes hands.

A fixed value or election requirement has applied to property acquisitions since April 2012. This must be satisfied in addition to the new pooling requirement before a second-hand purchaser can claim CAs. Where a seller has claimed allowances, the seller and purchaser must make an election within two years of the date of completion agreeing the value of the fixtures. The seller must bring the value into account as a disposal value in its CAs computation; the purchaser should then be able to claim CAs on this amount.

Tax Innovations Capital Allowances Services

If you think that your transaction will be affected by these issues you should contact Tax Innovations who will help you to decide if specialist capital allowances analysis or advice is required.

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or email customerservice@taxinnovations.com.