Property investors in a fix as capital allowances rules tighten

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From April this year, reforms to capital allowances legislation could leave many property investors in the dark about their tax rebate entitlements and how to go about claiming. Tax specialists at RIFT Limited urge anyone who has recently sold or purchased a commercial property, or is planning to do so, to contact a capital allowances specialist or risk missing out on tax relief.

Capital allowance legislation changes

New rules restricting claims for property investors introduced to shake up capital allowances legislation

In a move to shake up capital allowances legislation, the government’s 2012 Finance Bill introduced new rules that restrict claims for property investors. The law comes into full force in April following a two year transitional period, and RIFT outlines the main hurdles now faced by those seeking to claim capital allowances on fixtures:

The Fixed Value Requirement
As of April 2012, if the seller of a commercial property has already claimed capital allowances, for the buyer to benefit, it is necessary for the buyer and seller to fix the value of the capital allowances, recording this as an s.198 election. If the value cannot be agreed on, the buyer’s only hope of benefiting from the capital allowances is to unilaterally take the matter to a First Tier Tribunal within two years of the transaction date.

The Pooling Requirement
After 5th April 2014 for income tax payers, and 31st March 2014 for corporation tax payers, the full extent of the capital allowance legislation comes into effect. If the seller has not made a capital allowances claim but is entitled to, then the seller must make a claim and ‘pool’ the capital allowances prior to the sale. If the pooling requirement is not met before the finalisation of the transaction, then the capital allowances are un-claimable and any potential relief is lost, effectively de-valuing the property.

RIFT Capital Allowances has made many successful capital allowance claims for commercial property buyers, assisting them in claiming back thousands of pounds in capital allowances, not only for refurbishments and necessary modifications to the property, but also for fixtures that previous owners neglected to claim relief on.

After April 2014, if the above buyers were to get any benefit from these overlooked capital allowances, they would need to ensure that the seller has the property surveyed and the value ‘pooled’ prior to the completion of the transaction.

Previously the buyer would have benefited from the seller’s oversight, now it will be in their interest to work a clause into the contract pre-sale, so that the capital allowances are addressed. If this is missed, the buyer should argue for a reduction in the selling price to account for this de-valuation.

The upside of this legislative move is that the seller will be better enlightened as to the full value of their property. Previously, valuable fixtures may have been overlooked, allowing the buyer to claim them fully. Under the new law, it now becomes the responsibility of all parties involved to ensure capital allowances are claimed correctly prior to the finalisation of the sale.

Ignorance of these legislation changes could cause a great deal of grief and conflict in commercial property transactions. It is highly advisable for both buyers and sellers, and their legal representatives, to seek out specialist advice as soon as possible.

About RIFT
Founded in 1999, The RIFT Group is one of the UK’s leading tax refund specialists and has claimed back over £16 million in tax refunds for their clients this year. To find out more about capital allowances tax rebates, email or contact 07854 076811 for a free telephone consultation.

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Sue Nelson
since: 02/2014
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