Purchases/sales of used property
The amount of Capital Allowances that can be claimed on the purchase of a used property is dependent on the tax history of the property and from April 2012 and April 2014 what the vendor and purchaser agree at the point of sale.
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 should be made.
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.1 (version 6) 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 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 electical 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.