What are Property Capital Allowances (PEFFS)?
Accountants will identify movable items which qualify for capital allowances, such as desks, chairs, computers, cars, etc, whilst being unaware of the qualifying integral fixtures & fittings embedded within the property that is essential for a business to carry out its trade.
This leaves an enormous wealth of unclaimed qualifying items on which capital allowances can be claimed.
You can find out more about the layers of commercial property by downloading our guide.
What items are missed?
New rules affecting all commercial property transactions
The first change (from April 2012)
The transitional period for Corporation Tax was the 1 April 2012 up to and including 31 March 2014; for Income Tax it was from 6 April 2012 up to and including 5 April 2014.
Where the Seller has made a Capital Allowance claim, the “Fixed Value Requirement” ensures that the Vendor’s disposal value and Purchaser’s acquisition value are one and the same. This is achieved by requiring the Seller and Buyer to enter into a joint Section 198 or Section 199 Capital Allowances Act 2001 election within two years of the transfer of the property.
If a figure cannot be jointly agreed, either party may make a unilateral appeal to the First Tier Tax Tribunal for an independent determination.
The second change (from April 2014)
After April 2014, the rules changed again to include a new “Pooling Requirement”.
For any property bought on or after the commencement date, in order for the Purchaser to be able to claim Capital Allowances, any Seller who could have claimed Capital Allowances must pool (though not necessarily claim) the allowances, which can then be passed to the Buyer.
The Pooling Requirement extends to all previous owners and not just the current Seller (where the previous owner had sold the property on or after the commencement date).
What do these changes mean?
If the 2012 Fixed Value Requirement or the 2014 Pooling Requirements are not met, then the buyer and any future owners will never be able to claim Capital Allowances on those fixtures.
For the business owner, this means an immediate and irrevocable loss of an important tax benefit and, for some types of commercial property, a reduction in future sales value.
For a property adviser, the complexity of these changes raises the prospect of their advice being called into question, potentially exposing their professional indemnity insurance.
How can we help?
Many businesses are missing tax allowances and your clients could be among those who risk losing this benefit. It is estimated that the majority of owners of commercial properties haven’t claimed because the dormant tax benefit in embedded fixtures is often overlooked. In addition, changes in the Finance Act from April 2014 also mean that tax allowances for commercial building fixtures could be lost to a new Buyer and all future owners. You may not have heard about this property relief because it requires a specialist surveyor and tax expert to review your client’s buildings and books.
It is important to understand how these changes have affected entitlement to capital allowances for PEFFs and our expert team are on hand to help.
Want to know more about capital allowances or do you have a potential claim that you would like us to investigate for you?
Get in touch using the form below and one of our team will be in touch.