Major changes to the rules on claiming capital allowances on fixtures in buildings were included in Finance Bill 2012 and buyers of commercial properties risk missing out on significant amounts of tax relief if the rules are not fully understood.?
Background
Prior to April 2012 where a building contained fixtures (e.g. sanitary appliances and fittings, hot water and heating installations, ventilation and air conditioning installations and lifts) the buyer and seller could fix the part of the price apportioned to the fixtures by agreeing what is known as a section 198 election. Alternatively, if no apportionment was agreed, the buyer could make their own apportionment on a just and reasonable basis, regardless of whether the seller had previously claimed capital allowances.? There was no time limit for the buyer to include any qualifying expenditure in its capital allowances pools and therefore claims could be made several years after the building was acquired. ?
Changes to this are being implement in two stages.? Firstly, there are changes which apply from April 2012 and then further changes will come into force from April 2014.?
Changes from April 2012
For expenditure incurred on or after 1 April 2012 (or 6 April 2012 for an unincorporated business) allowances will only be available on fixtures if, within 2 years, either:
-????????? The buyer and seller have jointly entered into a section 198 election, or
-????????? Either party refers the matter to a tax tribunal to determine the amount to be allocated to fixtures.?
If, within two years of the transaction, no election is made or the amount is not referred to the tax tribunal, then no capital allowances will be due to the buyer or to any subsequent owner of the property.?
Changes from April 2014
From April 2014, if the seller has not previously claimed allowances, the buyer of the property will only be able to claim capital allowances on fixtures if the seller has ?pooled? the qualifying expenditure.? This means that the seller must include the expenditure in its capital allowances computation in either the accounting period in which the property is sold, or in an earlier period. ?????
Action to be taken
Property buyers and sellers should seek specialist advice when entering into property transactions.? If the above requirements are not met then the purchaser and any subsequent owner of the property will never be able to claim capital allowances on the fixtures.? This could result in a significant loss of tax relief to the purchaser and may reduce the future selling price of the property.?
Author: Alastair Wilson, Tax Partner
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Source: http://businessadvicene.com/2012/07/23/capital-allowances-for-fixtures/
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