The reticence on the part of banks to support the SME community has meant many business and property owners have looked to their brokers to source finance. Brokers are now uniquely positioned to also provide advice on areas overlooked by other professional advisers.
Capital allowances is just such an area of tax planning that regularly falls between the cracks of professional advice. Often, incorrectly, it is assumed that the client’s accountant or solicitor will have picked it up whereas they may never have visited the property and, even if they have, it was not with an eye on the building, but rather on the business that operates from it.
Capital allowances opportunities are extremely easy for a broker to spot and the typical commission for identifying a capital allowance case is around £1,000. All that is required is to identify if your client’s commercial property has any fixtures and fittings that don’t form part of the fabric of the building.
For example, capital allowances can be claimed on anything from the plumbing, electrics, carpet, air conditioning, signage and lifts to fire safety.
Recent regulatory changes also make the role of a broker more important as the basis on which capital allowances refunds can be made have changed.
Basically, the Finance Act 2012 produced new fixtures legislation (“The effect of changes in ownership of a fixture”). Under the new rules your clients are obliged to deal with capital allowances during a property transaction. Also, the fixed value requirement (or the disposal value statement requirement) and the pooling requirement both must be satisfied.
In summary, the fixed value requirement requires that the seller or previous owner, who sold the property on, must have fixed the disposal value of the fixtures.
This must be completed within two years of the purchase and an ‘election’ jointly submitted by both seller and purchaser to HMRC so that the purchaser can subsequently claim capital allowances. The fixed value requirement will apply even where the purchaser is not able to claim capital allowances.
A pooling requirement also applies whereby capital allowances must be pooled at some point prior to sale, or a 100% first year allowance must be claimed.
Whilst the pooling requirement will not apply to purchasers until after the current transitional period, the same is not true of the fixed value requirement or the disposal value requirement.
If these matters are not dealt with properly, the result could be a complete loss of capital allowances for current and future taxpayers who acquire that property. From a broker’s perspective, this could have an impact on market value in the future.
Finally, for any broker that is currently handling sales on a property, you should be aware that we are currently within a transitional period that affects which rules are applied.
Property that is purchased (and not resold within this period) between April 2012 (April 1 for corporation tax and April 6 for income tax) and April 2014 are not subject to all of the new provisions. If a property is sold and then resold again within the two year period between 2012 and 2014, then they will become subject to all of the requirements, including the pooling requirement.
Our advice therefore is to contact a tax specialist working in this area to discuss the likelihood of a claim and how best to progress it in order to meet HMRC requirements and also to gauge the financial benefits to you (as an adviser) and your client.
