With the multitude of legal and commercial terms to agree to get a deal over the line, capital allowances can often be a casualty with a desire to not want to slow or delay a deal. It can also be that for some sellers they cannot or do not want to assist on passing over any known or often more to the point, unknown capital allowances, so you end up with agreeing to an election under s198 of the Capital Allowances Act (CAA) 2001 for £2.00. The effect of which is to say that, to the extent the seller had entitlement to claim, they are not passing over any unclaimed allowances to the buyer.
Where this is the case, then it can automatically be felt that there is no further tax relief for capital allowances available on the deal, but that is often not the case.
If the contract is silent, then there is still a two year window in which a s198 election can be entered into to pass across any unclaimed capital allowances, but without a contract clause provision, it would be reliant on the goodwill of the seller, which is often achievable, as in most cases there is no downside for the seller. Significant tax relief can be gained where a known capital project has been undertaken, such as a recent refurbishment, as this often will not have been claimed on and therefore the buyer can undertake the quantification and elect across the benefit within 2 years of completing.
If a past owner has paid a capital contribution to an incoming tenant, the landlord has the entitlement to any capital allowances on that payment and it falls outside of the s198 election restriction. Contribution allowances instead pass across at the tax written down value or if not claimed, then the buyer can make a claim.
The introduction of Integral Features as a new allowance gave rise to the ability to claim on new headings of fixtures, such as cold water and electrical systems and so if the purchase represents the first after the introduction on the 1 April 2008, then the buyer has an unrestricted claim on those qualifying fixtures as they have not been claimed previously. Overage claims can amount to up to 15% of the purchase consideration and is calculated based on a valuation exercise apportioning the price paid between a cleared site land value, rebuild cost and value of the qualifying fixtures.
There is a more unusual quirk in the capital allowances legislation, which is often overlooked, which is to provide the new buyer with the entitlement to claim on those acquired fixtures which have been installed by a tenant prior to purchase. Should the tenant be a non-tax paying entity such as a government body and have spent money on their own fit out, then the new buyer can claim on those fixtures as there has been no prior right to claim and the items become fixtures in the property.
Additionally we have often reviewed historic acquisitions pre-dating the capital allowances legislation changes in 2014, and on which no claims have been made, when the legislation requirements on acquisitions weren’t as stringent as they are now, giving rise to claim opportunities which may not be possible if the property was acquired today.
These are just some examples of the additional claim opportunities that can arise, so all is not lost, and it is still a worthwhile exercise to engage with a capital allowances specialist who will be able to establish any potential allowances in a short space of time.
Should you have a past property purchase that hasn’t had a detailed capital allowances review undertaken, then please contact one of our directors for an initial consultation.