The Capital Allowance legislation changed back in April 2014, when HMRC placed extra onus on the purchaser to address Capital Allowances before completion of the deal or risk losing out altogether. Here we set out some key actions to avoid this scenario.
Veritas Advisory have advised on hundreds of property transactions and with the introduction of section 187A of the Capital Allowances Act 2001, it has brought increased risk for clients and their advisors when it comes to securing the best Capital Allowance position.
The greatest risk comes with the buying side and typically there are two scenarios that can often arise. The first is where the seller is unaware or has simply not addressed the historic Capital Allowances position, this will be evident by the fact that both the heads of terms and replies to CPSEs are silent or noted as TBA. In this scenario, the onus is on the purchaser to drive the conversation on Capital Allowances or risk losing out.
It is preferable to get a Capital Allowance specialist advisor who can establish the likely quantum of claim available, which will then dictate next steps. If it is found that the value of the claim is likely to be minimal, this too can be helpful to remove any potential delays to the deal. Where a material benefit is found, then what is critical is to ensure that the sale contract makes for the legal provision for both parties to agree to enter a section 198 election to pass over any unclaimed Capital Allowances. Without any such obligation, it will leave the buyer exposed to the risk of missing out and reliant on the goodwill of the seller to satisfy the fix value requirement.
In our experience, where the seller has not claimed nor is intending to, then providing the buyer meets the cost to quantify the allowances, they will agree to sign up to a section 198 election.
If the seller is switched on to Capital Allowances, then this gives rise to another set of risks to address. If the seller is offering the value of £2.00 as an elected fixed value, then this will effectively remove any entitlement for the buyer on those qualifying fixtures which the seller had entitlement to claim. Note that even where this is the case, then the buyer can still have entitlement to claim on certain fixtures which fall outside of the section 198 requirements, such as prior landlord tenant capital contributions and overage claims where the vendor didn’t have the entitlement.
Buyers should be aware that it can be only too easy to sign up to what the seller’s lawyers propose, which can sometimes be a protective position. This however, can still be challenged as the value to which both parties agree to fix the value of Capital Allowances at is a commercial settlement and therefore down to negotiation by both parties as part of the agreed deal. By having a Capital Allowances consultant on board at the time of the deal, it can help to lead such discussions rather than to rely on the acting lawyers to deliver the best position.
It is worth noting that if a fixed value cannot be obtained, then in some circumstances there is the option for either party to apply for an independent decision to be reached by writing to the first-tier tribunal service. Veritas Advisory are one of the first practices to have been successful in agreeing such a claim.
For the seller, if they have historically claimed and are up to date with making these claims, then it is simply a case of agreeing to a fixed value on disposal. If there are any unclaimed allowances or the inherited position is not known, then it is advisable to get a Capital Allowance consultant to determine the position so that the basic facts are known and will not lead to the deal being delayed. It will also enable the seller to try to extract some further benefit on sale.
Veritas Advisory offer its clients a comprehensive Capital Allowance due diligence service where we sit alongside the legal teams to maximise available claims and reduce risk. Should this service be of interest then please contact one of our directors.