Capital allowances and S198 election

Client selling property business wants to make capital allowances S198 claim

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A client owns commercial property via ltd company that he wants to sell. The previous accountant when the property was purchased capitalised all as land and building and no capital allowances were claimed. In 2017/18 he did renovations and again all of the renovations were capitalised under property, except for approx £6k that was taken to plant and machinery and capital allowance claimed. Now the client has gone to a specilaist capital allowance firm for a report and they have come back with a valuation of approx £1m that should be in 18%pool and £0.5m that should be in 6% pool. Client has said as part of thee sale he wants to go via S198 election.

Would really appreciate if someone can answer the question please. The year end accounts for 2020/21 are in the process of being prepared. Can I include the renovations of £1.5m in 2020/21 accounts as additions and claim 18% and 8% alllowances. Will I be able to claim allowances for the previous years too or can only claim for one year 2020/21. 

The prperty is expected to be sold in Sep this year. The year end is March. On sale can I claim e.g. 6 months allowances for April to September, or in the year of sale no capital allowance is allowed.

I would really appreciate a reply. I have tried seraching for this but so far have had  no luck.

Kind regards   

Replies (16)

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By Paul Crowley
07th Aug 2021 12:44

same client as prior question?

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Replying to Paul Crowley:
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By Lisa09
07th Aug 2021 12:45

No, a different one

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By Paul Crowley
07th Aug 2021 13:00

" Now the client has gone to a specilaist capital allowance firm for a report and they have come back with a valuation of approx £1m that should be in 18%pool and £0.5m that should be in 6% pool. Client has said as part of thee sale he wants to go via S198 election."
I would leave this to the specialist
You were not involved when this started
Client chose specialist
Let specialist,selected by client, accept all responsibility

Are you really able to comment on specialist opinion?

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Replying to Paul Crowley:
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By Lisa09
07th Aug 2021 13:09

Thank you for the reply Paul. I need to prepare the 2020/21 accounts. I will not query/question the specialist valuation and will take into account £1.5m split 18% and 6%. I have tried reading on this and appears I can include this as additions to the capital allowances pool. There is a little confusion on the two years rule if HMRC can argue that have past the time limit. But at the same time I have come across arguments saying two years rule does not apply. I was thinking of taking this valuation in the 2020/21 accounts as additions to the pool and claiming one year allowance.

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Replying to Lisa09:
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By Paul Crowley
07th Aug 2021 13:51

Make clear to your client that you are relying completely on the expertise of the specialist and accept no responsbility.
Any challenge by HMRC will need to be dealt with by client's cchosen specialist.
How recent is this client?
Consider your PII
I would not be doing what you are doing without making very clear that I accept no responsibility confirmed in writing from the client.
Judgement on the values is impossible and way over the limit of my comfort zone

I regularly inform clients that I am submitting their figures on an execution only basis and accept no liability should their figures be challenged and found to be incorrect

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Replying to Paul Crowley:
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By Lisa09
07th Aug 2021 13:59

Thank you Paul and you are absolutely right in pointing to the high risk with the valuation. I will definitely reply back to the client stating that I am purely relying on the pool valuations that he has forwarded provided by his own appointed experts and any subsequent inquiry by HMRC he and his experts will have to deal with.

But going back to the questions. When included as additions in 2020/21 accounts can I only take one years allowance and forget the previous years not claimed. Also, on disposal can I take further time apportioned 6 months or not allowance in the year of disposal.

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Replying to Lisa09:
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By Paul Crowley
07th Aug 2021 14:16

The specialist should advise on this
They are the self proclaimed experts

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Replying to Lisa09:
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By Lisa09
07th Aug 2021 14:34

I do see your point Paul, but their reply could be they just value and the final accounting is done by the accountants, I guess.

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Replying to Lisa09:
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By Lisa09
07th Aug 2021 14:34

I do see your point Paul, but their reply could be they just value and the final accounting is done by the accountants, I guess.

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Psycho
By Wilson Philips
07th Aug 2021 14:49

You can add the expenditure to the respective pools for any years that are open ie able to be amended.

Whether you can claim allowances in year of sale will depend on whether there is a continuing property business.

Bear in mind that the purchaser may also want to benefit from a s198 election so the benefit of allowances transferred should be factored into price discussions.

I disagree that the matter should be left to the capital allowance specialists - their role is to quantify the qualifying expenditure but are rarely in a position to advise on the optimal use of allowances, which should be the responsibility of the tax adviser.

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Replying to Wilson Philips:
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By DKB-Sheffield
07th Aug 2021 15:22

Wilson Philips wrote:

I disagree that the matter should be left to the capital allowance specialists - their role is to quantify the qualifying expenditure but are rarely in a position to advise on the optimal use of allowances, which should be the responsibility of the tax adviser.

I agree with you in principal. However, it will all depend on the capacity in which the experts were advising. Some give a ball park figure (i.e. don't actually do much other than over excite clients), some give a full report of the claim value (and then we deal with HMRC), others will file the report and an amended return with HMRC (giving the starting point for the current return).

Generally I have found such experts to be more than willing to converse on the matter. My only bug bear is that they tend to act and submit embedded CA claims (and revised returns) without sending them to me to review (although, that's as much the client's fault as theirs)!

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By Lisa09
07th Aug 2021 15:57

Thank you for the reply. I guess the purchaser will continue with the property business, plus the purchaser will like to take advantage of the s198 election. Wilson, the accounts for 17/18, 18/19 & 19/20 been completed and submitted. I guess you are saying if can still go back and amend a prior year tax return then can still claim for that year in the current year. The computation may look odd if I say additions of e.g. £1m and claim for more than 18% allowance. Or would i have to go back and amend prior year tax return

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Replying to Lisa09:
Psycho
By Wilson Philips
07th Aug 2021 16:52

You need to amend the prior year.

Not sure if you understood my point about the seller continuing to carry on a property business. Although re-reading the question, it seems they won’t be. No WDAs in period of cessation - only balancing adjustments (which might be £zero).

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Replying to Wilson Philips:
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By Lisa09
07th Aug 2021 17:43

Sorry a bit late reply, as running around the kids too.

Thank you Wilson. One point is clear that no CA in the year of cessation. I thought that too, but the experts with the report had a 6mths apportionment in the comp a that confused me a but. I think you are right that sale price for will match TWDV and so no balancing allowance or charge

Sorry, but if I can still ask re claiming CA during 20/21 accounts. Will it be just one year or can I claim for the proceeding years too

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Replying to Lisa09:
Psycho
By Wilson Philips
07th Aug 2021 18:40

That is why I would always let the specialists deal with quantifying the expenditure and then dealing with the actual claims myself.

You can only claim the allowances that you are entitled to for each year. So you need to amend the earliest return that you can, claiming WDA on the value introduced to the pool(s) and WDAs etc for subsequent periods (also amended where appropriate) will follow their natural course.

Whether TWDV is the appropriate figure for the s198 election will depend on what the parties agree.

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Replying to Wilson Philips:
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By Lisa09
07th Aug 2021 18:58

Thank you, really appreciate your reply.

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