Legislation Changes
At the point of acquisition or disposal of a commercial property there is a substantial legal point that is hugely understated and often overlooked. The importance of understanding the legalities whether a property is bought, sold, built, refurbished, redeveloped and/or extending is crucial. This applies even if you are an occupier or an investor.
Are you selling a property?
Unclaimed capital allowances will be a major contribution to company resources in today’s difficult markets. It can make a critical difference to the value of any deal on the table.
Buyer’s perspective
Knowing that a substantial claim can be made by transfer of ownership alters the “cost” of the purchase substantially and can make an unaffordable deal both affordable and attractive.
Seller’s perspective
The unclaimed capital allowances are a benefit that could be offered to a potential Buyer as a sweetener, to move a deal along in a low market.
At the point of sale of a building, huge amounts of capital allowances change hands without either party being aware they have given them away or inherited the benefit.
Are you buying a property?
If all eligible allowances were not identified by the seller at the time of completion, the buyer will have inherited a capital allowances “windfall” which can be incorporated into the purchase cash flow projections altering the financial profile of the project.
This inclusion can make the purchase more acceptable to the financial institution supporting the purchase. In fact, even if they were all identified, there may still be a claim!
Are you building or rebuilding property?
You can make a claim on the building you are demolishing and make a second claim for capital allowances within the new structure. If you have recently (within the last 2 years) demolished a building, a smaller virtual claim can probably be made based on the old building.
Selling plant fixtures – Section 198 Elections
When the plant is sold, a disposal value must be brought into account. This may be calculated using a “Just and Reasonable Apportionment”, or for fixtures, a Capital Allowances ACT 2001 Section 198 Election.
Sellers should generally seek to agree as low an election amount as possible (e.g, tax written-down value or say £1). However, buyers should usually avoid elections at less than the full amount of the seller’s claim. There are various technical conditions necessary to make an election, but the greatest practical difficulty normally arises from providing information sufficient to identify the plant, and quantifying the value of the fixtures.
Case History
What can be lost?
We have seen a client lose in excess of £160,000 from a transaction that was over two years old where all parties thought they had implemented the new rules legislation changes correctly. Could this be you?
What can be gained?
When legislation is understood and applied properly, significant tax savings can be secured for both seller and buyer and the property advisers involved are not exposed to risks.
