If you advise on property you must now deal with Capital Allowances prior to transaction completion or deal with clients facing potential losses. If there is any chance that the building will be sold after April 2014 and you have not claimed (or 'pooled') the allowances prior to sale you will have destroyed investment value for each and every future purchaser. The result might be a significant loss for clients. Robert Maas, Tax Consultant and author of the Bloomsbury Professional Property Taxes book, and Saira Puffett, Surveyor and Tax Specialist recently spoke about what specific action is needed under the new rules to 'protect' capital allowances entitlement for your clients.

1. CBW Tax
Warning for
Property Advisors
28 January 2014

2. A building contains fixtures
which will attract capital
allowances
•
•
•
•
•
•
Available only on commercial property
But includes second hand
And sometimes lease premiums
Fixtures 18%
Integral features 8%
Enhanced allowances on new energy saving/environmentally
beneficial plant

3. CAA 2001, s 187A
•
Applies where:
• a) person acquires a (non-residential) building
which includes fixtures, and
• b) a previous owner was entitled to claim
capital allowances on the fixtures
NB Any previous owner, not merely the vendor to the
client

4. Change from 1 April 2014
•
From 1 April 2014 a purchaser can claim capital
allowances only if BOTH;
•
a) the pooling requirement is satisfied, and
•
b)the value of the fixtures is fixed within two
years of the acquisition by either;
(i) an s 198/199 election (or certificate from
an earlier owner), or
(ii) an application to the FTT

5. Section 198 election
•
•
•
•
As agreement as to the transfer value of the
fixtures
Made jointly between vendor and purchaser
Can agree any figure between nil and the vendor’s
‘cost’ of the fixtures
But vendor will pay extra if it exceeds his pool WDV

6. •
•
Head (b) does not apply:
on a sale at an undervalue to a person
not eligible to claim allowances or to
certain dual resident companies, or
where the vendor’s business ceased
without the building being sold
In such cases the purchaser needs the vendor to
give him a statement of his disposal value brought
into account

7. The Pooling Requirement
•
The vendor (or a previous owner if the vendor was not
entitled to claim the allowances) allocated his expenditure on
the fixtures to a plant and machinery pool in an accounting
period (or tax year) beginning before he sold the building (or
he claimed a first year allowance in respect of the
expenditure)

8. Things to note
•
•
•
•
The vendor does not have to have claimed capital
allowances
But he has to have brought the expenditure into an
asset pool
He can do this only in his corporation tax
computations
Which have to be sent to HMRC within 12 months of
the end of the AP (although they can be amended
for another 12 months)

9. •
•
•
Many landlords do not claim allowances
particularly non-residents
because their interest payments largely
cover the rent
and they like to keep a low profile with HMRC
So they will not be aware of the rules
And may cease to have a UK presence

10. •
•
•
Where allowances have not been claimed by the
vendor it may not be easy to quantify the amount
eligible for allowances
Where past allowances have been claimed the
amount is limited to the last person’s disposal value
(or a s 198/199 election may have been made)
If they have not you may need a surveyor!

11. •
•
•
The vendor will not want to incur the cost
unless he has to do so as a condition of the purchase
Even if the purchaser bears the costs the vendor may be
reluctant to co-operate
particularly if he is not asked to do so until months
after the transaction
So the issue needs to be addressed pre-completion

12. •
•
•
•
•
The figure needs to be established early
The vendor needs it for his tax comps
You need it for the s 198 election which has a two year time
limit
It will take time to quantify the amount
Particularly if allowances have not previously been claimed or
not claimed on all of the expenditure

13. •
If a disposal value is not brought into account by the first
person to dispose of the building after 1 April 2014, the
building could be permanently devalued
as no future owner will be entitled to claim allowances
on past expenditure
•
There is a limited exception where the vendor is a charity,
pension fund, etc

14. What if the vendor is a
charity or pension fund?
•
•
•
S 187A does not apply to fixtures installed by the charity
But still applies to those installed by an earlier owner
If the charity did not make a s 198 election when it acquired
the building it can obtain a certificate from the previous
owner of the disposal value brought into account by that
person and pass on the benefit of that figure (which is likely
to be nil)

15. What if the purchaser is
a charity or pension fund?
•
•
•
It is still able to make a s 198 election
but may not want to spend time or money negotiating
a figure with its vendor
Or to apply to the FTT to fix the value
but does it want to incur the cost?
It can instead get a certificate from its vendor of its disposal
value
but that may be nil or very low

16. •
•
Such a certificate from a previous owner must be given by
the last person entitled to claim allowances
and must state that it is now too late for him to make
an election, and
his disposal value brought into account
Such a certificate can be used only if his purchaser (or all
subsequent purchasers) was not entitled to claim allowances

17. What if the vendor is
insolvent?
•
•
•
Tough luck??
Insolvency practitioners do not normally want to expend time
or money to help a purchaser
Indeed, it is probably improper for them to do so unless doing
it will increase the sale price of the building

18. CBW Tax
Practicalities of the
claim
28 January 2014

19. Practicalities
•
Establishing the value
•
Process – what we need from you
•
Remember

20. Value of Allowances
Type of Building
Acquisition
Cost
Tax saved
Office, high spec. a/c
£5,000,000
£350,000
Industrial Warehouse,
light
£5,000,000
£200,000
Mixed use retail/leisure
£5,000,000
£100,000
Hotel, 5 star
£5,000,000
£350,000

21. Preparing the Claim
Process
•
Likely to be either during the purchase or
immediately post completion with the benefit of
contractual support
•
Timescale – seller will have to include the disposal
value in his tax comps, which usually are filed 12
months after their year end
•
A s198 Election must be completed within 2 years
of the transaction date

22. Process – Post April 14
•
Where the seller has not claimed (but was entitled to do so)
the buyer MUST satisfy the following to be able to claim
•
•
•
Pooling requirement
Fixed value requirement
But how?

23. Pooling Requirement
The buyer will need to
•
Establish a just apportionment of purchase price, at the point
of the seller’s purchase;
•
Just apportionment splits purchase price between
• Qualifying plant & machinery
• Non qualifying building
• Land value
•
Identify the plant & machinery
•
The seller will need to allocate the expenditure to the relevant
asset pool


24. Fixed Value Requirement
•
Seller and buyer agree to fix the sellers disposal value
•
Through
• Joint CAA2001 s198 Election
• Tribunal
• Disposal value statement
•
Best case for buyer
• Disposal value is fixed at the sellers original cost – this is
the maximum claim available to the buyer.


25. Contractual Provisions
Contractual provisions should require the seller to provide:• His purchase price;
• Date of purchase;
• From whom purchase made;
• Whether any agreement entered into at point of
purchase;
• Details of any capital works carried out during his
ownership;
• Agree to pool the allowances, once quantified;
• Agree to not claim the allowances; AND
• Agree to enter a s198 Election at his original cost

26. Realities
•
A property where the seller has been through the
process of identifying the allowances will be more
marketable?
•
If no allowances claimed previously, calculations are
likely to be at the purchasers expense – but
significant benefit
•
Without contractual support the process is going to
be very difficult
•
Clients will be looking to their solicitors to deal with
these matters during the transaction
•
Take careful note of the information provided by the
Vendor in the CPS enquiries

27. Acting for the Seller
Post April 2014
•
Consider the capital allowances available on the property and
their value;
•
If no claim made by current owner, consider making claim
and keeping the benefit; or
•
If no claim made, consider ‘selling’ the benefit as part of the
transaction; require the buyer to incur the costs in identifying
the allowances

28. Remember
Post April 14
•
Allowances to a purchaser CAN BE COMPLETELY
LOST without action on capital allowances at
acquisition
•
The value of allowances can be considerable - they
are worth protecting
•
If buying from a charity, public authority, pension
fund etc, allowances may still be available
•
Do not ignore allowances during the transaction

29. Contact Us
CBW Tax Limited
Enterprise House
21 Buckle Street
London
E1 8NN
t:
f:
+ 44 (0)20 7309 3800
+ 44 (0)20 7309 3801
e: info@cbw.co.uk
w: cbwtax.co.uk

30. Robert Maas
Tax Consultant & Tax Expert
Robert is a giant in the tax world. He is widely regarded as one of the leading tax
practitioners in the UK and is a long-standing tax commentator. He has authored
extensively on tax and is always a draw card speaker.
The announcement that Robert had won the 2013 Lifetime Achievement Award was met
with a standing ovation. Robert is well-loved and much respected – with good reason.
Amongst other roles, Robert is a member of the Technical Committee of the ICAEW Tax
Faculty.
t: +44 (0)20 7309 3800
robert.maas@cbw.co.uk

31. Saira Puffett
Tax Consultant
Saira started her tax career at Andersen, where she gained her ATT qualification, moving
after a year to Deloitte & Touche to spend four years in the Property Tax Team. Saira then
spent two more years with KPMG before being persuaded to set up her own practice to
work for select clients only.
She joined CBW in March 2008 as a specialist consultant on property tax issues. She also
holds a MRICS qualification.
t: +44 (0)20 7309 3800
saira.puffett@cbw.co.uk

32. Andy White
Tax Partner
Advising clients on their strategic tax affairs is Andy’s specialist area. He combines his deep
technical knowledge and creativity to deliver real taxation solutions that advance clients’
commercial and personal interests.
With 30 years’ general practice experience, including advising on flotation's, MBOs and
secondary buyouts, Andy makes an excellent advisor to most businesses experiencing rapid
growth or considering strategic changes.
t: +44 (0)20 7309 3917
andy.white@cbw.co.uk

33. Thomas Adcock
Tax Partner
Thomas is a specialist in helping businesses to understand the tax implications of their
actions. He works closely with entrepreneurs to manage their tax liability when engaging in
property deals, M&A, re-organisations, growth, international deals or when simply looking
to improve their tax efficiency.
He also works with ambitious and successful individuals who wish to build, spend or share
their personal wealth tax efficiently.
t: +44 (0)20 7309 3856
thomas.adcock@cbw.co.uk