Capital allowances and integral fixtures: A case study of lost allowances. By Nichola Ross Martin

Fixtures that are integral to commercial buildings are often overlooked for tax purposes; in short they get “lost” when property changes hands. They are worth finding again, as they may amount to up to 35% of the actual cost of a building (and much more in some extreme cases).

Continued...

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Comments

Reduction in base land building cost upon disposal

pricompany | | Permalink

If a client bought a building say two years earlierfor £600K, then made a claim for the element estimated as relating to FF at say 25% WDA on £100K, would this reduce the base cost of the building on disposal to £500k?

K Price

Two points

andy.white.cros... | | Permalink

The answer to the question on base cost is no. You do not adjust the base cost for capital allowances claimed or kept (they can be kept by entering into a s198 election for £1 with the purchaser), meaning that when you sell at a profit there is no interaction between CGT and capital allowances. This is a common misconception.

Secondly, on the article above, in nearly all cases it is beneficial for there to be no mention of capital allowances in the contract from the purchaser’s viewpoint. Section 198 elections generally safeguard the vendor’s position and are often detrimental to the claim a purchaser would be able to make. This is particularly true in a rising property market. It can be better to leave these considerations to a specialist in this area to avoid issues with the client with regard to loss in value.

Good Article

colin.abbeytax.co.uk | | Permalink

Congratulations to Nicki an a good article on a much over looked 'legitimate' tax planning opportunity. A S198 election can provide an arbitrage between buyer and seller to 'donate' CAs to the higher rate taxpayer in the transaction, particularly if there has been a survey of the property that has identified further f & f's embedded within the building.

S41TCGA1992 is the piece of legislation which supports Andy White's comment that the base cost is not adjusted for CGT purposes. Hence the apparent 'double tax relief'.

My colleague, Nick Tovagliari, is a bit of a guru on embedded CAs and the opportunities it presents (0870 167 0790).

Be wary of s198 elections!

padwick1964 | | Permalink

I certainly agree with the comment of Andy White that purchasers should generally avoid signing up to a s198 election - very often, raising the possibility of an election simply alerts vendors to the fact that they are giving up a valuable tax asset. Purchasers are generally better off avoiding s198 elections and making a claim based on an apportionment of the purchase price under s562 CAA 2001.

Secondly, perhaps the main reason why inadequate claims are made by purchasers is that they do not take specialist advice. The capital allowances legislation is weighty and complex, and valuation issues should not be left to a general building surveyor, however 'decent', who does not understand the tax aspects of the work he is being asked to do. Don't forget, for example, that an apportionment of the purchase price of a property requires not only a valuation of the plant itself, but also of the 'bricks and mortar' and of the land, something which is not routinely carried out by building surveyors. It is not simply a question of giving a surveyor a list of plant and asking him to give a 'decent approximation' of what they are worth.

To maximise the capital allowances, it is best to use advisers with both surveying and tax qualifications. There are very few of these about, but my colleagues Steven Bone, Adam Garrad and Julie Gill do have those qualifications, and can be contacted on 0121 355 1955.

Fair comment, Martin,

Anonymous | | Permalink

"Decent" is a bit of a woolly adjective! Yes of course, subcontract to an experienced commerical surveyor who understands the tax issues.

Marketing issue?

andy.white.cros... | | Permalink

It is definitely a pertinent issue with the current proposed changes. It certainly brings us specialists out to comment in force!