Capital allowance changes – don’t miss out!

07 October 2015

Changes in the capital allowances rules could lead to commercial property owners, whether buying or selling, losing this valuable tax relief forever if they fail to act. Owners of UK commercial property (excluding residential dwellings) could be entitled to unclaimed tax relief worth billions of pounds.

What tax relief?

UK commercial property owners can claim tax relief on certain items of plant and machinery that are fixed to the property (known as ‘fixtures’) that qualify for capital allowances; such as lighting, heating and air-conditioning systems. Whether the property is held as an investment or is used in a trading business, these allowances can be deducted from your taxable profits, to reduce your tax bill. However, many commercial property owners have not taken advantage of this relief and may therefore be losing out on valuable tax savings, which may be very valuable to your business. .

Buying and selling – the important things

The tax rules changed for commercial property transactions taking place on or after 1 April 2014. As a result of the changes, it is now important for the purchaser to obtain full information about the capital allowances history of the property prior to completion of the transaction. This will help buyers to maximise the allowances they can claim and also help sellers to maximise sale proceeds. Another consequence of the rule changes is that it is no longer possible for a buyer to ignore capital allowances when acquiring a commercial property and then claim the allowances at a later date. The new rules impose requirements that must be met, and agreed between the parties. Failing to do this could result in the loss of this valuable tax relief.

What’s the rush?

Time may be running out for commercial property owners to secure this unclaimed tax relief due to the changes that came into force on 1 April 2014. For property transactions which took place in the period immediately after 1 April 2014, we will soon be coming up to the deadline for complying with these new rules. By the second anniversary of the transaction the seller needs to have included (‘pooled’ as its commonly known) the expenditure on fixtures in their tax computation and to have agreed the disposal value of the fixtures. Where the parties agree the disposal value, they need to enter into a joint election which they both sign and submit to HMRC. All of this will take a substantial amount of time, so it is certainly not advisable to leave it until near to the deadline before taking action. Failure to comply will result in capital allowances being lost forever, so it is vital to act now to ensure this valuable tax relief is preserved.

How to avoid missing out

All commercial property owners should review their portfolio to establish if they have any unclaimed qualifying expenditure. RSM can help you with this process by identifying and quantifying any unclaimed expenditure. Once identified and quantified, the expenditure can be pooled in your current tax return to generate tax savings for you, and avoid the loss of this relief to future owners.

Going forward, those looking to buy or sell commercial property should ensure they deal with these issues by taking advice on the capital allowances position as part of the transaction.

For further information to ensure you don’t miss out on this valuable tax relief, please contact Howard Freedman or your usual RSM adviser.