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Capital Allowances and sales of commercial property

19 January 2015

Advisors estimate that only about 4% of available capital allowances are claimed (this is based on government figures which indicate that there are around 1.4m commercial properties held in the UK). This means that UK tax payers as a whole are missing out on billions of tax relief. Whether you are looking to sell a commercial property or simply haven’t considered capital allowances before, it seems a shame to let a legitimate tax saving scheme go to waste.

More often than not when we property lawyers are acting for a buyer and are presented with a Contract for sale, this provides for a nominal £1 Capital Allowances election figure. This might be for the simple (and legitimate) reason that allowances have been claimed in full or that the seller’s accountant has reviewed unclaimed allowances and wants to hold onto the right to make a claim. I suppose this is fair enough if a seller can set off the allowances against property income, after all it has probably spent the funds against which allowances are now looking to be claimed.

On the other hand, this may have simply been overlooked in the discussions to dispose of a property. It might be that the seller is winding up its business and can’t make use of the allowance. In this situation, if the existence of allowances is flushed out early enough then the allowance can be passed onto a buyer, perhaps with the cash equivalent benefit being split between the parties and the sale price being apportioned accordingly. Then it’s a win win situation. By the time we are negotiating contracts however, its usually too late for an assessment to be commissioned and the allowance is likely to be lost.

Menzies accountancy firm, who count property clients as their biggest specialist sector, find that typically while people are aware of the availability of claims for items such as fixtures and fittings there is less awareness about the ability to claim for integral features. Integral features include air conditioning, hot and cold water heating systems and any floor or ceiling comprised in such a system, as well as lifts and escalators within a building. Whilst tax relief on integral features is generally available at a slower rate, immediate and full tax relief is currently available for all qualifying items where a tax payer spends up to £500k on qualifying items up to 31 December 2015.

Angela Flanagan
Barlow Robbins