Commercial Property Purchases & Capital Allowances
When purchasing a commercial property, it is important to protect Capital Allowances during commercial property transactions. Capital Allowances should be considered as part of the transaction process.
Many commercial properties contain valuable qualifying embedded fixtures and plant which may allow purchasers to claim significant tax relief. However, the availability of those allowances is heavily influenced by the tax history of the property and the way the transaction is structured.
Failure to review the Capital Allowances position before completion can result in valuable allowances being permanently lost.
At CA Select, we support buyers, accountants and solicitors by reviewing the Capital Allowances position during commercial property acquisitions and transactions.
Why Capital Allowances Matter When Buying Commercial Property
Commercial properties often contain qualifying embedded fixtures such as:
- electrical installations
- lighting systems
- heating and air conditioning systems
- fire alarm systems
- security systems
- lifts
- sanitaryware
- cold water systems
- specialist fit outs
- mechanical installations
Many of these assets may qualify for Capital Allowances relief and thevalue of available allowances can vary significantly depending on
- historic ownership
- previous claims history
- seller tax status
- Section 198 elections
- refurbishment expenditure
- whether qualifying expenditure has previously been pooled
Capital Allowances & Property Transactions
Capital Allowances should ideally be considered during the early stages of a commercial property transaction.
Early review can help identify
- potential qualifying expenditure
- historic embedded fixtures
- transaction risks
- Section 198 requirements
- opportunities to protect future claims
We regularly work alongside
- buyers
- accountants
- solicitors
- commercial property advisers
- investors
- developers
to help ensure the Capital Allowances position is properly reviewed before completion.
Section 198 Elections & Historic Claims
Commercial property transactions involving fixtures are often affected by Section 198 election rules and historic pooling requirements introduced under the Finance Act 2012.
Where these issues are not addressed correctly during a transaction, future purchasers may lose the ability to claim allowances on qualifying fixtures.
We regularly review
- Section 198 election position
- historic claims history
- CPSE replies
- draft contracts
- seller tax position
- embedded fixture ownership
as part of the transaction review process.
Commercial Property Due Diligence
Capital Allowances due diligence forms an important part of many commercial property acquisitions.
Our review process may involve
- reviewing legal documentation
- assessing historic expenditure
- identifying qualifying fixtures
- reviewing refurbishment works
- analysing embedded plant and machinery
- supporting accountants and solicitors during transactions
Early involvement can help purchasers better understand the potential tax position relating to the property.
Refurbishments & Improvement Works
Many commercial properties undergo refurbishment and improvement works during ownership.
Historic expenditure relating to
- electrical upgrades
- lighting improvements
- heating and air conditioning systems / installation
- sanitaryware installations
- fit outs
- fire and security systems
- mechanical systems
- specialist installations
may contain qualifying expenditure which has never previously been reviewed.
Common Issues We Identify
We regularly encounter situations where allowances may otherwise have been missed, including
- missing Section 198 elections
- historic embedded fixtures overlooked
- seller pooling requirements not considered
- incomplete CPSE replies
- historic refurbishment expenditure not analysed
- incorrect assumptions during transactions
- public sector or non tax paying ownership complications
Supporting Buyers & Professional Advisers
We regularly support
- commercial property buyers
- accountants
- solicitors
- property investors
- developers
- commercial finance advisers
throughout the acquisition and due diligence process.
Our approach is practical, commercially focused and tailored to the specific circumstances of each transaction.
Speak To CA Select Limited
If you are
- purchasing a commercial property
- reviewing a property transaction
- considering a Capital Allowances claim
- supporting clients during acquisitions
- reviewing historic expenditure
contact CA Select Limited to discuss the Capital Allowances position relating to the property transaction.
Pre-April 2012
Irrespective of when the property was purchased by the current owner, Capital Allowances claims are not time barred and can still be made. In virtually all cases this will mean the taxpayer receives a tax refund from HMRC.
Where Capital Allowances had not previously been claimed on the property the purchaser can make a claim via a just and reasonable apportionment under s562 CAA 2001 based on the value at the date of purchase.
If claims for Capital Allowances had been made by any previous owner, they could be limited to the original cost of the property.
Fixed value requirement
From April 2012 the fixed value requirement was introduced on sales of used properties where the vendor and purchaser of a used property must agree the amount of Capital Allowances to be transferred.
Where the vendor had previously claimed Capital Allowances this is done by both parties signing elections under s198 CAA 2001 fixing the values to be transferred. Separate elections must be made for integral features and general plant.
Where the vendor had not previously claimed Capital Allowances, s198 CAA 2001 elections are not possible and a just and reasonable apportionment under s562 CAA 2001 could be made.
Pooling requirement
From April 2014 the pooling requirement was introduced on sales of used properties meaning the vendor must have entered the expenditure in his Capital Allowances pools but not necessarily claimed an allowance.
Following the pooling requirement, the fixed value requirement must also be satisfied and both parties should sign elections under s198 CAA 2001.
Other points to consider
It is important to establish the amount of Capital Allowances available at the pre-contact stage of a transaction. This is done by solicitors using the standard CPSE enquiries endorsed by the British Property Federation.
In the event the pooling requirement and fixed value requirement are not satisfied, no subsequent owner will be able to claim Capital Allowances on the property which could materially reduce the market value on a future sale.
Parties have 2 years from the date of transaction to sign and submit to HMRC elections under s198 CAA 2001. Failure to satisfy the 2-year rule renders the s198 CAA 2001 election invalid.
Another area that is frequently overlooked is where a property is purchased by the current owner after April 2008 but was owned by the vendor prior to April 2008. In these circumstances a s198 CAA 2001 election may have been signed for £1 but the election would have excluded expenditure on general electrical, lighting and cold water systems since the vendor was prevented from claiming Capital Allowances on these assets when he purchased the building (prior to April 2008).
However, s33A CAA 2001 widened the definition of plant or machinery to include general electrical, lighting and cold water systems and since the vendor purchased the property after April 2008 a claim for Capital Allowances on these assets on a just and reasonable basis under s562 CAA 2001 can now be made.
