Buyer and Seller Beware
There are good and bad companies in most markets and the capital allowances claims market is no exception. Last week we were were contacted by an accountant whose client was selling their industrial property which they had purchased for £500,00 in circa 2004. The selling price was circa £1.4m.
The problem was the buyer's had engaged a "capital allowances claims company" who were trying to make a claim based purely on the purchase price of £1.4m. This was, they had calculated, a claim of some £425,000 of capital allowances. The reason the vendor's accountant was contacting us was they were being asked to pool these allowances in their client's accounts before passing them through to the buyer by way of a Section 198 Tax Election.
Why is this the wrong approach?
The first issue here is that the vendor, who had not previously made a claim for the embedded fixtures in the property, can only pool capital allowances based on their own expenditure i.e. the £500,000 purchase price. We estimated these capital allowances were probably going to be no more that circa £50,000 in this instance. These allowances when properly evaluated through a detailed capital allowances claims report could then be passed onto the vendor via the Section 198 Tax Election.
Secondly because the vendor purchased the property before the introduction of the "Integral Features Legislation" in April 2008 and therefore could not have claimed for the majority of these features the buyer was in this case free to claim capital allowances for some of these features. We estimated that based on their purchase price of of £1,4m these capital allowances could amount to say a maximum of £150,000.
As you can see from the above our overall estimate of the capital allowances which may be available to the buyer would be in the region of £200,000 while the capital allowances claims company, engaged by the buyer, was trying to claim £425,000 and not only that were asking the vendor to pool all these allowances in their accounts before passing through to the buyer!!
Luckily in this case the vendor's accountant new they were being asked to do something that was not in line with the new capital allowances legislation introduced in April 2014. For all accountants, whose clients may be in a position of buying or selling commercial property, it is worth having at least a rudimentary knowledge of how the new rules should be applied but if in doubt, many good capital allowances claims companies, such as ours, are willing to provide free advice to ensure that capital allowances claims are handled in a professional manner aligned to the prevailing legislation of the day.