Currently there is no time limit for when capital allowances can be claimed on the acquisition of a property; but this will change next month, allowing just two years in which to pool any qualifying expenditure.
If a property is purchased after 1 April 2014 (for corporation tax payers) or 6 April 2014 (for income tax payers), capital allowances must be pooled (either by the seller, or by the seller and the vendor electing to transfer the allowances at an agreed amount) within the two years. If this is not done, there is a real risk that the tax relief will be lost. It will be lost not just on this acquisition, but all future transactions.
Properties acquired from non-taxpaying entities such as pension funds will not be affected unless a previous tax paying entity held the asset after April 2014.
Commenting on the change, Graham Burrell, Head of Capital Allowances at CBRE said:
“Although capital allowances are quite high on the pecking order of priorities when acquiring commercial property, their importance should arguably ascend to the most urgent. Inadequate advice during the due diligence stage could prove to be very costly for both parties.”
Those set to benefit from the change are sellers of properties ‘rich’ in fixtures who have not yet pooled the allowances, as the value of the benefit can be reflected in the purchase price. Other beneficiaries include institutional investors who are not eligible to pay UK tax (such as pension funds) and are selling a property which has had no prior owners since April 2014. These properties may become more attractive to purchasers with significant trading profits or individuals paying a higher tax rate.
Continuing, Graham Burrell said: “Clearly the effects on the industry are far-reaching. We expect to see a shift in the way capital allowances are dealt with prior to transactions taking place, and we may begin to see the effects on market values of properties; particularly those where the allowances may have been lost.”