All too often, I will take a call along the lines of ‘I’ve sold my commercial property and the Solicitor wants to know what fixtures he needs to put on the CPSE forms’. Against the clock and after the terms of sale have been agreed; often it is too late to negotiate the best deal at this stage.
April 2014 saw changes introduced which has affected the way in which capital allowances on fixtures must be dealt with. Despite these changes having been in place for well over two years now, we still see cases where clients have failed to act, or have realised they need to act too late in a transaction on a fairly regular basis.
To recap, the key changes from FA2012 which need to be followed are:-
• The Fixed Value requirement – The value of the fixtures for capital allowances must be jointly agreed in a s198 election within a two year time frame. This is to ensure the acquisition and disposal valuations are aligned
• The pooling requirement – The vendor must have included all qualifying fixtures into their capital allowances pool. This can be done at any time between the vendor purchasing the property and its subsequent sale, and was introduced to prevent the mischief of ‘double claimed’ allowances on any one building.
The changes have removed the scope for there to be two different values returned for the same transaction, one by the vendor, in order to minimise a Capital Allowance balancing charge, and a different figure used by the purchaser to maximise his Capital Allowance claim. The rule is fair, but means that negotiation is inevitable to ensure that both parties are happy with the value agreed.
If the new rules are not complied with, any capital allowances entitlement on those fixtures is nullified for this and all future purchasers of the building. This is clearly bad for all parties (current and future) with an interest in the property.
Having the correct advice on the treatment of fixtures for Capital Allowance purposes, is vital to either party achieving the best possible position and generally it will be the better advised of the two that achieves the most favourable position.
That said, it is important to note that the purchaser cannot force a fixed value s198 election, nor can they enforce the correct pooling of the capital allowances by the vendor. However, if the two parties cannot agree there is a tribunal service available for both parties to enforce a value. This is likely to result in the vendor being in a worse position, as is evident by the fact to date this service has not been used.
It is in the interest of the purchaser to ensure that both parts of the FA2012 requirements have been met, for themselves and onward sell-ability of the building.
One common misconception is that you must be considering a sale in order to review the fixtures, but really it is in anyone who owns a commercial property’s interest to see whether they are eligible to claim allowances. In our experience the benefit of ensuring the maximum level of tax relief from capital allowance is claimed, at the earliest opportunity, far outweighs the professional fees incurred in the process, biting the bullet sooner rather than later, may give the vendor more control of the situation when he does sell.
In summary, it is in the interest of all involved in a commercial property transaction to know what they are doing, and the potential ramifications of doing it incorrectly could be long lasting and costly. Seeking the advice of a specialist tax advisor early on is of clear benefit for all involved.