Hi all, does anyone know if there's any way round the anti-avoidance legislation biting here?
A new client has just bought a property from an elderly family member, who needed to divest but had failed to sell on the open market. The seller is a long retired former solicitor and a stickler for rules, so the transaction was done at a professionally agreed valuation, to be sure of market value for CGT purposes. My client's intention is to run an FHL business and he wishes to claim capital allowances.
It seems that CAA2001 s214-217 will prevent him from claiming AIA on purchased plant & machinery, even though there's no intention to exploit rules to claim excess allowances.
Furthermore, it seems, there is no opportunity ever for him ever to claim allowances on integral features, because the connected previous owner bought pre 2008 (FA2008, Sch26, para15.)
I assume that he can pool the plant & machinery and claim writing down allowances, but must wait until he sells the property to deduct costs of integral features in his capital gains calculation.
Am I correct in my understanding that despite there being no intention to avoid tax/abuse legislation, the buyer is automatically penalised for buying from a connected party? And importantly, are there other provisions I may have missed which prevent normal tax allowances and reliefs being available as an unfortunate consequence of connected party rules. I don't relish telling him the bad news, but thank you wise ones if you are able to share your interpretations.
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Could you please clarify?
Hi Jim,
Could you clarify the nature of the property when it was purchased by your client? Reading between the lines it sounds like the property was "residential" and is only now likely to become "commercial" once it is used as a furnished holiday let. Is this the case?
Regards
John
Intention of the Parties
I don''t believe It was the intention of the legislation to capture this type of transaction i.e. the purpose of the transaction is not to accelerate the claiming of capital allowances. Yes you would still need to research any capital allowances claims history to see whether a previous owner had made a claim but if so this may only restrict entitlement rather than negate a claim altogether.
Has your client purchased the property through a formal purchase contract by the way? Also there is no interaction between capital gains legislation and capital allowances.
A couple of other things to consider are that you will not be able to claim capital allowances on the property until it meets the qualifying criteria for a furnished holiday let and also since April 2011 you have not been able to use any losses within the fhl business to provide sideways tax relief on any other income. You may well have known these points but I thought it was worth mentioning.
Qualifying Transaction
Hi Jim,
I'm now thinking this doesn't meet the requirements of a qualifying transaction under the new capital allowances rules as basically it is the sale of a residential property. As yet it doesn't sound likely that there has been a capital allowance claim in the past and for all intents and purposes no assets are transferring which at the time of the sale would qualify for capital allowances because there is no qualifying trade on either side.
I hope this helps.
Regards
John
My thoughts.
You can only claim capital allowances on an fhl once it meets the qualifying criteria so until you have evidence of this you cannot make a claim. Usually the qualifying criteria are measured for each individual tax year.
Where a claim for capital allowances has not previously been made on a property then then the claim will not be affected by the changes that came into effect in April 2012 I.e the buyer can make a claim based on a just and reasonable apportionment of the purchase price. This changes in April 2014.
Personally I think because the vendor was never in a position to claim capital allowances the purpose of the transaction could not be interpreted as being one designed to accelerate a claim for capital allowances. If anybody has a different opinion I would like to hear it as well.
Ltd coy filing
Has anyone experience of using the HRMC website for filing very small Ltd Coy A/C,s .I use Iris,very good but expensive when you only have a few coys?