Capital Allowances Misconceptions
I will pay more capital gains tax when I sell the property if Capital Allowances are claimed
This is a common misconception particularly amongst accountants and solicitors but guidance from HMRC is very clear – where Capital Allowances have been claimed and a capital gain is made on the sale of the property no adjustment is necessary.
However, where Capital Allowances have been claimed and a capital loss is made on the sale the loss should be reduced by up to the Capital Allowances claimed.
Capital Allowances are a timing difference, what is gained now is lost when the property is sold
This is another very common misconception. The amount of Capital Allowances transferred when a property is sold is dependent on what the parties agree via an election under section 198 CAA 2001. If you are considering a property sale please contact us.
The purchase agreement allocates the consideration between the asset categories
Whilst the Purchase Agreement may have addressed chattels, the legislation is clear that the fixtures within a property must be the subject of an election under s198 CAA 2001. Where such an election is inappropriate, perhaps because the property is being purchased from a pension fund, any Capital Allowances claim must be made on a just and reasonable basis in accordance with s562 CAA 2001.
The fixed assets note in the Accounts determines what Capital Allowances can be claimed
This is not true. Tax legislation determines what Capital Allowances can be claimed.
Furthermore, when Capital Allowances in commercial property are claimed the cost of land and buildings should not be reduced in the note to the Accounts.
My accountant has advised Capital Allowances claims can only be made on properties purchased within the last 2 years
What your accountant may be referring to is a tax return can only be amended up to 2 years after the end of year.
Eg. a company with a year ended 31 December 2021 can amend the return by 31 December 2023 and an individual has until 31 January 2025 in which to amend the 2022/23 tax return.
Therefore, if a company purchased a property during the year ended 31 December 2023, a Capital Allowances claim can be made on or before 31 December 2025. In this instance should a claim be made after 31 December 2025 the company will have lost the ability to claim FYA and AIA and only WDAs (Writing Down Allowances) will be available.
