julie b
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Capital allowances pooling post 1 April 2014

Capital allowances pooling post 1 April 2014

I have a client selling a hotel business which we hoped to complete on 31 March but failed to do so.  I understand that we need to make a joint election for fixtures under s198 but we have not previously made any claims for capital allowances on integral fixtures.  We will now need to 'pool' an agreed figure but I am unclear how this is done in practise.  Suppose we agree a figure of £10,000 - do we create a pool, add this figure as additions and then show proceeds of the same amount so that there is no tax due?  Also do we have to be able to substantiate any agreed figure either by actual invoices (which would be virtually impossible) or by some specialist valuation?


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05th Apr 2014 22:09

Lots of issues here


There are lots of separate issues here and you may wish to take advice from someone who is more familiar with the rules. In brief, however, there are two possible scenarios: your client is entitled to claim for the items in question or he is not.

Client not entitled to claim

For integral features, it may be impossible for your client to make a claim. This will be the case if your client has owned the items since before April 2008 and if they are integral features that did not previously qualify for relief (e.g. they are general lighting costs rather than the costs of a lift, which would always have qualified).

If your client could not claim allowances, he cannot now pool the items and there is no question of an election: nothing has changed in this respect as a result of the FA 2012 changes, including those now applying now for the first time from this month. There is no risk to your client in these circumstances and it will be open to the new owner to make a claim based on an apportionment of the overall purchase cost. 

Client entitled to claim

Even if your client is entitled to make a claim, he does not technically HAVE TO do so. However, failure to do so will deny all future allowances on the assets in question for all future owners.

If your client is entitled to claim allowances for the fixtures, but has not done so, he can make a claim now, for the final period before the sale (or for any earlier period that is still open for self assessment purposes).

The claim should be made by means of creating a "special rate pool" (but by adding the items in question to an existing special rate pool if your client already has one (eg for higher emission cars)). The figures to use need to be the cost to your client - the actual cost if he bought them new but otherwise the agreed transfer value at the time he acquired them from a third party. This is where it gets messy: if he bought from someone else in, say, 2009, and if there was no fixtures election at the time, you will need to consider the purchase and sale agreement from that time. It is quite possible that no claim can be made if you cannot prove whether an earlier owner had made a claim or not.

Finally, if your client can make a claim and does so he can either retain the value of the allowances claimed, or pass the value on to the new owner fully or in part. This is achieved by agreeing an election figure that is between zero and the cost of his claim.

Items on which he has already claimed

This does not relate directly to your query but is added for completeness.

If your client does not sign an election for items on which he HAS claimed allowances, he leaves himself open to a possible balancing charge on those items. And allowances will again be denied to all future owners.

Thanks (2)
07th Apr 2014 11:54

Further to the earlier response

I think Mr Chidell's reply is an excellent response to a difficult issue. We have been dealing with several clients in the same situation and the salient points are as follows: 

1. Depending upon when your client purchased (and perhaps refurbished) the property, they may be entitled to claim capital allowances on main pool fixtures and integral features. This is dependent upon whether their expenditure was incurred before or after 1 April 2008. 

2. Subject to the response to '1' above, the purchaser will require that your client pools capital allowances for fixtures for main pool P&M (and perhaps integral features). This pooled amount will generally be based upon your client's expenditure on those items (rather than an arbitrary figure). It may be useful to have this valuation prepared by a specialist.

3. An election under s.198 will be completed for an amount agreed between the buyer and your client. 

Note that a hotel is likely to contain many qualifying 'non-fixtures' which would not be subject to an election. Also, entitlement to the capital allowances for fixtures for your client (or the buyer) will not be assured without appropriate due diligence anyway. 

Finally, I would note that as the buyer is potentially getting the benefit here, perhaps you should suggest they bear the cost of any such exercise? 


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By julie b
07th Apr 2014 12:36

Pre 2008

Thank you for both of these most helpful replies.  My client has owned the hotel since 1981 and no major expenditure has been incurred since 1 April 2008 which would include integral fixtures so I think this means that we don't need to consider this area any further?  We have already agreed a figure for the 'moveable' fixed assets on which capital allowances have previously been claimed and accept that there will be a balancing charge arising.

Just to clarify (as I am finding the new rules a bit tricky to follow) -as we have not claimed and would not have been able to claim allowances on integral fixtures the purchaser can still make a claim based on apportionment of the price paid for the business without any involvement from us?  The contract mentions that we should supply them with any necessary evidence but presumably they should get their own specialist valuation done post completion?  The original contract included a s198 joint election for £1 (inserted by the lawyers) - should this still be included or not at all?

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07th Apr 2014 18:05

Ignore post
Please ignore

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07th Apr 2014 14:39

RE: Pre 2008

Your client would have been entitled to claim capital allowances on main pool P&M (i.e. not integral features) and would need to pool and use an election to transfer these items. 

However, if you were going to elect for £1 anyway, I don't really see the point in bothering to go through this.

Your client will not need to complete the election if they have not pooled the available main pool allowances. The buyer will not be able to claim on these items because the pooling requirement has not been met and there is no benefit to either party in completing such an election. 

The buyer may only claim capital allowances on integral features as an apportionment of purchase price as your client was not entitled to claim upon these items. 

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07th Apr 2014 15:35

24 July 1996

Am I right in thinking that an amount can only be included in the pool to the extent that expenditure was incurred on fixtures after 24 July 1996, so that the owner of a hotel, purchased in 1981, can't bring an amount into their pool in respect of their original purchase, with the result that when it is now sold, the new purchaser can't claim anything (other than any added fixtures/integral features that should be within the pool)?

Also didn't hotels qualify for IBAs at some stage?

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07th Apr 2014 15:43

Re: 24 July 1996

I don't think that's correct. If the owner purchased the relevant interest before 24 July 1996, the 'old' rules will apply and the claimant would need to confirm entitlement. In theory, they could still pool and claim. 

There were HBAs available in the not-so-distant past. 




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07th Apr 2014 15:54

I didn't think so, steve

I thought the relevance of 24 July 1996 was that where expenditure was incurred after that date (strictly, if allowances have been claimed since that date), allowances claimed by any subsequent person could not exceed that amount. But no such restriction for expenditure incurred/allowances claimed before that date.


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07th Apr 2014 15:53


No, I am mistaken. CAA 2001, Sch. 3, para. 34, modifies s. 181 in those circumstances, but doesn't prevent it from applying.

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07th Apr 2014 19:58

24 July 1996

Just to clarify further re this date, Steve has rightly pointed out that we need to look at Sch. 3 of CAA 2001. The date features there several times, but perhaps the most common relevance in practice is the reference in para. 38, which disapplies s. 185 "if the disposal event which required the disposal value to be brought into account as mentioned in subsection (1)(d) occurred before 24th July 1996".

This has broadly the effect that BKD has indicated.

A taxpayer's disposal value will normally give the acquisition value for the purchaser anyway. As such, the date is of particular relevance if there is a non-taxpayer along the way. This is because s. 185 kicks in if you have, for example, a taxpayer A who sells a property to a pension fund B in 1998, which in turn sells to a taxpayer C in 2014. The effect of s. 185 is that C's qualifying expenditure may have to be restricted by reference to any claim made by A. However, if the first transaction had been three years earlier, in 1995, s. 185 would then be disapplied by para. 38 of Sch. 3, and C's claim would be unrestricted (i.e. on the basis that nobody who has owned the property since 24 July 1996 has been in a position to claim allowances).

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07th Apr 2014 20:09

And one other related point

I had a discussion today with someone about a real case where the vendor's solicitors were saying that they did not want their client to sign a fixtures election as the fixtures in question were bought some years ago and had been written down to almost nothing (because of AIA and/or WDA claims).

From the point of view of the vendor, this is potentially catastrophic advice! If the FA 2012 hoops are not properly negotiated, the purchaser will lose entitlement to allowances for the fixtures in question. However, the vendor is also very likely to face a balancing charge, potentially re-capturing most or all of the allowances claimed on the assets concerned. What the solicitor should be saying is that his client insists on having an election, but wants to include only a very small figure.

For example, a property was bought for £2m in 2000 and is now being sold for £3m. Allowances were claimed on fixtures of £500k, and let's say that £460,000 of allowances have already been given. Assume that all the fixtures are still in place. If there is no fixtures election (and no Tribunal ruling on the transfer value), the purchaser will be denied all allowances, but the vendor will almost certainly face a balancing charge of £460k. By contrast, if a fixtures election is signed with a figure of £1, the vendor will obtain further allowances of virtually £40k.




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11th Apr 2014 18:39

s198 election
The new rules do not really change the position for the seller. To protect its position it must sign a s198 election for at least £2. £1 for fixtures that will be added to the buyers main pool and £1 for fixtures that will be added to the buyers special rate pool. Failure to do so will allow a buyer to apply to the Tax Tribunal and this will probably result in a larger disposal amount than £2! The delay for completion after the end of the transitional window is really a matter that affects the buyer. If Hotels allowances have previously been claimed s186 will give the buyer most trouble. The s198 election for £2 protects your client the seller.

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