Capital allowances on fixtures in a property could be lost forever under new rules effective from April 2014.
If certain requirements are not met on the sale of second hand fixtures after that date, the new owner (and all future owners) will have no right to claim capital allowances in respect of those fixtures. This could well impact on the value of the relevant property.
Capital allowances may be available when fixtures are acquired on the acquisition of property. In order to make a claim, expenditure on the fixtures must be included in a relevant pool, with allowances being available on the tax written down value of the pool each year.
On sale of the fixtures, the disposal value is deducted from the pool and if such disposal value is in excess of the tax written down value, then a balancing charge will arise.
Previously if a buyer was unaware of a seller’s disposal value, the buyer might attribute a higher value to the fixtures resulting in capital allowances being claimed by both buyer and seller on the same expenditure. The new rules were introduced to counter these concerns.
Certain persons, such as pension funds, charities or property trading companies are not entitled to claim capital allowances.
New “pooling requirement”
From April 2014, a purchaser (and/or any subsequent purchaser) will only be entitled to claim capital allowances if the “pooling requirement” is met.
This means that if a purchaser wishes retain the right to claim capital allowances then broadly:
(the “past owner”) must have allocated its expenditure on the fixtures to a capital allowance pool prior to its sale of the property (though allowances do not actually have to have been claimed).
Post April 2012 “fixed value requirement”
In addition, the “fixed value requirement” introduced in April 2012 must also be met.
This requires that either:
The new rules will not apply if a property has been bought direct from the original developer, or from a charity or pension fund which itself bought direct from the original developer. But in most cases, purchasers will need to review the position carefully prior to an acquisition. It will no longer be possible to ignore capital allowances at the time of acquisition of the property and then claim them later.
A purchaser should:
Potential sellers should:
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