Proposed changes to Capital Allowances for fixtures

1. ARE YOU AWARE THAT THE GOVERNMENT INTENDS TO BLOW APART CAPITAL ALLOWANCE CLAIMS RELATING TO FIXTURES???

2. HMR&C have published a consultation document “Capital Allowances for Fixtures”Dated 31/05/2011 Closing Date for comments 31/08/2011 Current Position Sellers & Purchasers may “neglect” to agree a single disposal / acquisition value for Fixtures (not moveable Furniture & Fittings) within the overall sales price. There is no time limit on when (if ever) Fixtures are added to the Capital Allowance Pool. When Retrospective claims are made for Fixtures there may be no realistic possibility of confirming the vendors position with regard to allowances on Fixtures already claimed – this often leads to claims being unnecessarily challenged by the Revenue .

3. Proposed Changes Mandatory Capital Allowance Pool A purchaser must allocate qualifying Fixtures to their appropriate Capital Allowance Pool within “a short period” following acquisition. That “short period” is likely to be one year (possibly two max.) Mandatory Capital Allowance pooling of Fixtures within the agreed “short period” should ensure vendors disposal value and purchasers acquisition value are one and the same (not always the current position).

4. 2) Historic Expenditure – Retrospective Capital Allowance claims This is probably the biggest / bitterest pill to swallow!!! Within one year (possibly two) of this new legislation becoming law a purchaser must submit a claim to the Revenue in respect of any previously acquired qualifying Fixtures for which no Capital Allowance claim has yet been made. Thereafter the purchaser (your client) will haveforfeitedthe rightto those unclaimed Capital Allowances.

5. 3) Record of Agreement To ensure how much of the overall sales price relates to Fixtures it is suggested that this allocation is agreed and recorded between the parties at the point of sale or very near to it. A “note” will be required in the subsequent tax returns of vendor and purchaser that such an agreement has been reached. This allocation of price for Fixtures will have to also reflect an agreed Market Value. What appears to be implied but not specifically stated is that this Record of Agreement is to cover allFixtures – not necessarily qualifying Fixtures – whether a Capital Allowance claim has been made or not.

6. 4) Section 198 Election This is an existing option that can be exercised to fix the value for Capital Allowance purposes for both the vendor and purchaser. The Revenue (at long last) have accepted that S198 Elections using nominal values eg: £1.00 for all Fixtures are notequitable. In future it is suggested that such S198 Elections must fix the price (for both vendor and purchaser) at a minimum level of the tax written down value of qualifyingFixtures in the vendor’s books. Copyright of Taxadjusters If a comprehensive schedule of Fixtures is not already available – a full Capital Allowance site survey and valuation will most probably be required to identify the Fixtures embedded within the building.