Do any of your clients own commercial property and are you aware of this popular misconception?

Dear All,

I have within the past month had the same conversation with a number of accountants as to why they have not commissioned a capital allowance claim on their clients commercial property. What it has thrown up on all occasions is a popular misconception within the profession that carrying out a CA claim produces a benefit in the short term which will be cancelled out when the property is sold by way of having to make an adjustment for CGT. The following was taken from Steven Bone's FRICS ATT excellent article dating back to 2007 on popular misconceptions in respect of claims for capital allowances. I hope you don't mind me reproducing it here as it does seem to be a very useful piece of information.

Regards

John Plumridge

Interaction with capital gains
Probably the most commonly heard misconception that we encounter is the view that any savings achieved by claiming capital allowances will be cancelled out later by an increased chargeable gain (if, of course, the property is ever sold).

That this is not true is made clear by s41(1) Taxation of Chargeable Gains Act 1992 (TCGA 1992), which says “Section 39 shall not require the exclusion from the sums allowable as a deduction in the computation of the gain of any expenditure as being expenditure in respect of which a capital allowance or renewals allowance is made” (s39 TCGA says any expenditure that would be an allowable deduction when calculating an income or corporation tax liability may not be deducted when computing a capital gain).

Section 41 TCGA 1992 therefore specifically provides that it is not necessary to deduct any capital allowances from the cost of an asset for capital gains purposes, so it is not possible for a capital allowances claim to create or increase a chargeable gain. Furthermore, claiming capital allowances also has no effect on the calculation of any capital gains indexation allowance that may be claimed.

A special rule does apply where a capital loss results, which prevents the cost of assets that have qualified for capital allowances from creating or increasing a loss. However, this is rarely relevant in practice. Plant and machinery fixtures are in law part of the land and building to which they are attached. They typically remain fixed to the building when it is sold and are normally sold at a profit with it. Therefore, capital losses rarely apply to fixtures.