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Integral Features Claim

Its Friday I have a stinking cold so please forgive the dumb question, but when making an integral features CA claim for a commercial property, on the sale you presumably have to add the costs back again to the comp, just as you would for the sale proceeds of any other asset?

Trying to phrase and email to a client about why its not a great plan given he was BR in year of purchase and is most likely to be HR on the sale.

Ie Features worth (say) £10,000

Claim AIA £10,000 (current tax relief £2,000)

On sale balancing charge £10,000 (future tax charge £4,000, potentially £5,000 if things go well)

Feel free to insult and laugh at the sick person if I got this hopelessly wrong as I have rather muddled thinking today.

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More or less correct

But ....

On a disposal, the apportionment to fixtures should be reasonable - there's no guarantee that they will be worth the same as on the date of purchase.

Depending on who the property is sold to you may be able to make a s198 election for, say, £1.

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Capital Allowances Claims - Integral Features

Firstly let me say I am not an accountant but work with capital allowances claims companies. My understanding is that you have effectively pooled the capital allowances available on the integral features and because of the AIA have been able to use them in their entirety.

When you say you are using the AIA you do realise this can only be used in the year the cost was incurred? I only ask because another accountant recently thought you could use the annual investment allowance to increase the rate of write down every year it was available regardless of when the cost was incurred. I don't think you add anything back into the sales balancing charge.

If you want a definitive answer ring Steven Bone from The Capital Allowances Partnership on 01353 675224. They are very accountant friendly.

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S198! I knew in the murkey depths at the back of my brain there was something you could do.

I know its going to be sold shortly so the total hold is only around 4-5 years so it would be reasonable to assume it will be similiar value.

 

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Balancing charge

Whether or not there is a balancing charge isn't really the question. The point is that, subject to a s198 election, a disposal of the property would require a disposal value to be brought into account in the main pool. Effectively taxed at the taxpayer's marginal rate - albeit possibly over a number of years,

 

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Capital Allowances Claims

I honestly think you should ring Steven Bone because you may be going down the wrong road here. He has written an article on S198 agreements which is on our website here is a link::-

http://goo.gl/avDsU

   

My understanding is it will only be worth doing a S198 agreement for £1 if he can use the balance of capital allowances himself in his ongoing business otherwise he can do a S198 for the written down value of the capital allowances and pass them over.

i hope this helps.

 

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With the greatest respect ...

plummy1 wrote:

My understanding is it will only be worth doing a S198 agreement for £1 if he can use the balance of capital allowances himself in his ongoing business otherwise he can do a S198 for the written down value of the capital allowances and pass them over.

.. I believe that most here advising on s198 elections know exactly what they're talking about. We may not be experts in flushing out the expenditure on fixtures eligible for allowances - that is indeed where the property capital allowance specialist has an important role - but when it comes down to best utilisation of allowances, s198 elections etc, that should be left in the hands of the tax adviser.

For instance, the vendor does not need to be able to use the balance of allowances in an ongoing business for a £1 election to be worthwhile. Anything that reduces the disposal proceeds to be taken into account is likely to be of benefit - including on cessation of business. One example of where there may be no point in an election is where the election would only serve to increase a terminal loss that already cannot be utliised. Of course, whether or not an election can be made will depend on the purchaser's position.

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thanks BKD, you are right I do have a basic working knowledge of s198 (now that you jogged the old grey matter), albeit enough to know to advise a client to get some proper advice if it was a big figure and the client is going through with it.

The issue plummy1 from an an advisor point of view is that these CA claims get as I am sure you are aware hard sold by various firms who dont stick around too long and seem to completely forget to mention any downsides in the claim. The general accountant will of course still be around dealing with it when the property gets sold in due course.  When advising a client in this area we are looking "in the round" not just at this years tax bill, but what might happen in the future, and also the commercial aspects. If you are selling a commercial property with a S198 claim to £1 for integral features this is clearly worth less than the one next door without to a savvy buyer. For low value claims generally its simply not worth the hassle, and in this clients case its seems a bit pointless just for a bit of BR relief, on what is a single furnished holiday letting by the time we add in all the costs of making the claim now and extra paperwork on sale even if I get him to someone a little more reputable than the person who has approached him at the moment then its going to be a big waste of time and might well cost him money overall after fees.

I should point out for a bigger commercial purchase (eg office building) I would be pushing this angle quite hard as the benefit of even the timing might be a substantial sum, and be using a reputable specialist firm to do a lot of the legwork and provide expert advice.

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I dough my cap!

Thanks for taking the time to clarify the case. Apologies I didn't mean to question your expertise but I can see that it has come across in that way.

Can I push my luck even further at the risk of getting a hard slap. We do come across a lot of accountants and some tax advisers that believe that carrying out a CA claim effects the level of CGT that is payable on disposal when this is only true in very limited circumstances. 

Is this something that you have come across in your experience of talking with other accountants and tax advisers or have we been particularly unlucky?

Also with most furnished holiday lets you can usually find in the region of 25% of the value including re-development costs in capital allowances. If there are only £10,000 in capital allowances likely to be found is this because the property costs were very low?

This all helps my education in terms of making sure we are not recommending actions to potential clients which just end up giving the accountant more of a headache further down the line.

 

Regards

John

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