On December 6th 2011 draft clauses for the Finance Bill 2012 were published. Some of these draft clauses relate to capital allowances legislation and therefore the rules which must be applied when making capital allowances claims.
The good news is that for property purchased before April 2012 the rules remain unchanged. A capital allowances claim is still possible regardless of when the property was purchased, subject to the usual constraints which may apply due to previous claims etc.
For two years from April 2012, where the seller has not claimed capital allowances the rules also remain unchanged.
However, where the seller has claimed capital allowances a section 198 election agreement will need to be drawn up between the parties to divide the capital allowances between them as they see fit. HMRC has not pushed through its’ original proposal to insist that the amount of capital allowances allocated must be the equivalent of the “Tax Written-Down Value” (TWDV). Therefore the parties are still fully free to agree the value of capital allowances available. If a S198 election agreement is missed then any right to claim capital allowances on the property will be lost entirely to both the new owner and any future owner.
If the parties cannot agree the values for the purposes of the election agreement either party may refer the case to the First-tier Tax Tribunal but this is unlikely to be a common occurrence given the likely cost of taking such an action.
One of the major changes to be made is that even if the seller has not claimed any capital allowances there will be a mandatory requirement for capital expenditure to be identified and pooled by the seller (that is, notified to HMRC). Broadly, this can be done up to two years after the sale of the property. This leads to the strange possibility that the buyer may have to ask the seller to pool the expenditure after the sale has been completed which would be achieved by the commissioning of a capital allowances specialist. There will obviously need to be a negotiation over who pays for the capital allowances claim in these circumstances and how any identified capital allowances will be allocated between the parties.
If the seller has not pooled the capital allowances qualifying expenditure within the required period then the right to claim capital allowances is lost not only by the new owner but by any subsequent potential purchaser. Furthermore, a S198 election agreement must be entered into. If either requirement is missed then any right to claim capital allowances on the property will be lost entirely to both the new owner and any future owner.
Where capital allowances claims are missed in this way it could actually reduce the potential value of the property in a buyer’s eyes so making a capital allowances claim is an imperative for owners of commercial property. Potentially conveyancing solicitors will need to take much more interest in capital allowances or risk being sued by their clients for not providing the correct advice at the time of sale / purchase.
HMRC has admitted that “businesses (perhaps especially smaller, unrepresented businesses) might inadvertently miss this deadline and so lose out” so obviously expects that potential capital allowances will go unclaimed and that this will reduce the number of claims which may be made in the future thus helping the Government’s financial position over time.