Abstracting an additional benefit on sale can often be overlooked when it comes to marketing on any unclaimed Capital Allowances. Here we set out the circumstances when this should be considered and how to go about it.
The position adopted for Capital Allowances on the sale of a property is largely dependent upon the extent that the entity can claim itself. For non-tax paying entities such as developers who hold the property as trading stock or pension companies and who cannot claim, they are able to market on the benefit of any unclaimed Capital Allowances at the point of sale.
For a company, individual or investor they have a choice, which revolves around whether they are better off retaining the unclaimed benefit or to market it onto a buyer. It should be noted that even where no prior claim has been made, then there is still the ability to submit a claim with an amended tax return before completing on the deal.
The structure of the holding entity can also dictate the best strategy to adopt. For an entity or individual which will still have an alternate income post sale of the property, then the legislation provides the ability to elect to retain the unclaimed allowances, by entering into a section 198 election with the buyer within 2 years of completion.
As a side note, it is one thing making adequate contract provision to enter into a section 198 election, but if an executed version is not submitted within 2 years, then you could face clawback of the relief or being found in breach of contract. The task of submitting the election all too often falls between the lawyer, accountant and client, so knowing who is responsible for this task is critical.
Conversely, if the property is held within an SPV, then with no future income it would often be beneficial to pass on any unclaimed Capital Allowances. This ideally should be raised within the heads of terms, in order that a value can be extracted on sale and whilst there is no direct correlation to achieving a higher sale price, by bringing it to the table, it will always help with negotiating the best deal.
With new rules introduced in 2014, the unclaimed Capital Allowances needs not only consider the sellers own expenditure in terms of entitlement to claim, but also that of past owners. Sellers can often make claims on a previous owner’s past expenditure, whether that be an acquisition or refurbishment. Any such unclaimed allowances should be identified and either claimed, marketed across or a combination of the two.
Veritas Advisory offers a service to prepare market sheets to quantify unclaimed Capital Allowances for heads of terms. Please contact one of our directors should this service be of interest.