At the recent annual conference for NARA (The Association of Property & Fixed Charge Receivers), Veritas Advisory set out the impact of the Capital Allowance changes brought in last year and explained the actions required when buying through receivers.
The rule change introduced by HMRC last April, now means that on disposal if any unclaimed Capital Allowances are not quantified with an election and pooled by the vendor, then the value of Capital Allowances is nil.
This presents a particularly difficult challenge in the case of buying property from receivership, where information and cooperation maybe in short supply.
The need to quantify the available Capital Allowances on disposal now requires the purchaser to ask the vendor, and potentially past owners, about the history of expenditure on the property and any prior claims for Capital Allowances. Whilst the relationship between the vendor and LPA Receiver can be awkward, by employing an independent Capital Allowances advisor it can help to open up the dialogue with the vendors and their advisors.
Once armed with the answers, it then drives the next steps. In some scenarios it maybe that the quantum is insignificant and this allows both parties to move on in agreeing the terms of the deal.
Once a material quantum is established by the Capital Allowances advisor then there is the need to elect over the benefit. In our experience of working on such deals, it has been possible to obtain the cooperation of the receiver via the vendor, as by having a signed election it removes any tax impact on the vendor.
At the conference it was widely acknowledged that Capital Allowances should be marketed on sale to assist the deal and to achieve best value. If however, cooperation is in short supply, then to agree a value the purchaser has the option of making an application to the first tier tribunal for an independent ruling.
The purchaser must however ensure that the position is adequately covered off in the drafting of the sale agreement. This is not to penalise the vendor in any way, but rather to provide the purchaser with the ability to go to tribunal if a signed election is not forthcoming.
This option is likely to become increasingly used to agree the value of Capital Allowances and with a disinterested vendor the purchaser should be in the box seat. This ruling will override the requirement to seek the vendor to satisfy the fixed value and pooling requirement.
Whilst the need to deal with Capital Allowances can be viewed as being in the too difficult box, the cash rewards, if pursued, can be significant and should in most cases not be ignored.