Further changes to Capital Allowances are due to be brought in this April.
The changes mainly affect the purchaser of second hand commercial buildings and their entitlement to claim tax relief in the form of capital allowances on the qualifying elements of the building known as fixtures and fittings.
From April 2014, capital allowances will only be available to a purchase of second hand fixtures, such as electrical installations, heating and ventilation systems, water systems etc, if the past owner had “pooled” the relevant expenditure for capital allowances purposes in a chargeable period when it owned the property.
While the majority of changes to Capital Allowances came into effect in April 2012, the final significant changes regarding pooling will apply to property (other than new buildings) acquired by corporate tax payers on or after 1 April 2014, and individuals on or after 6 April 2014.
Under the “mandatory pooling requirement”, from April 2014 a purchaser of second hand property will only be entitled to claim allowances on second hand fixtures within the building if the fixtures have been properly identified by the previous owner and recognised in their capital allowances computation.
Pooling can only apply to a seller who was entitled to claim capital allowances and not to charities and pension schemes for example.
This significance of this is that if the previous owner had failed to make a claim for capital allowances which is not an uncommon occurrence, the entitlement will be lost for all future purchasers of the building.
As such, purchasers will need to find out about the sellers capital allowance position as early as possible. Certain planning steps can be implemented in order to protect the purchaser of second hand property after the mandatory pooling obligation comes into force, but this planning must be implemented before the purchase is done.
Retrospective action will not be possible in the vast majority of cases, so if the seller has not claimed allowances but was entitled to, the purchaser will need to ensure that the seller agrees in the sale documentation to pool its expenditure.
This new pooling requirement will be in addition to the fixed value or election requirement that has applied for property acquired since April 2012 and must also be satisfied if a purchaser of second-hand fixtures is to obtain allowances.
The seller and purchaser must make an election within two years from the date of completion setting out the value attributed to the fixtures, or, if they cannot agree, apply to the Tax Tribunal for the value to be determined.