Anyone involved in commercial property will know how “fragile” transactions can be. Therefore, those advising sellers should do all they can to turn a potential loss into a gain.
The changes made to the Capital Allowances Act 2001 by the Finance Act 2012 (made by the insertion of a new section 187A regarding the “Effect of Changes in Ownership of a Fixture”) is one which needs to be given some thought, sooner rather than later.
A seller will be asked to provide any prudent buyer with answers to Commercial Property Standards Enquiries (CPSE) Part 19 of the new CPSE form provides 12 questions for a seller to answer on Capital Allowances. Giving “qualified” answers to these questions, such as, “not so far as the seller is aware” and “not to our knowledge”, have led to claims for misrepresentation, and such answers will not be acceptable if the new legislation is to be correctly complied with.
Post April 2014, joint elections between seller and buyer in respect of Capital Allowance claims for fixtures will form a crucial part of the commercial property transaction.
First of all, a seller should have made a claim on Capital Allowance fixtures. Failure to do so may mean that the seller has not only given up the opportunity of getting tax relief but it could mean that the sale is delayed (because the buyer wants to be able to take the benefit of the relief) until the claim has been established or the property becomes less valuable (the benefit of being able to claim tax relief may make the property more desirable to a buyer).
Where a seller has claimed Capital Allowances on fixtures it will now be necessary for the seller to fix the disposal value of the fixtures by entering into a joint election with the purchaser in order for the purchaser to establish an entitlement to Capital Allowances (Section 198 (freehold) or Section 199 (Leasehold) of the Capital Allowances Act 2001). The apportionment will therefore form a crucial part of all commercial property negotiations before a sale.
If the seller does not insist on an election as a term of the sale, the purchaser can apply to the Tribunal to fix the disposal value of the fixtures within two years of the transaction’s completion date.
If no joint election is made, or a Tribunal application to fix the disposal value is made within the two year period, no subsequent purchaser will be able to make a claim for capital allowances relief.
If you own a commercial property or if you are contemplating selling a commercial property, before marketing it:-
1. Take advice from an expert in Capital Allowance claims (not all accountants have this expertise as it involves surveying the property to identify what fixture in what context will be eligible and the right value is given) to ensure a claim is made so an owner or tenant of a commercial property does not miss the opportunity of a significant unused tax relief.
2. Make a claim for Capital Allowances if you are contemplating a sale:-
(a) Take advice from the Capital Allowance expert on negotiations to fix the disposal value on the Capital Allowances for election; and
(b) take advice from your solicitor on the completion of the CPSE form.
3. DO NOT wait until you have found a buyer before dealing with any of the above.
It is envisaged that there will be seven parties involved in the negotiations of the Capital Allowances for the purposes of the Section 198/199 joint election; the seller, the buyer, the seller’s solicitor, the buyer’s solicitor, the seller’s accountant, the buyer’s accountant, and the commercial selling agent. It is easy to see why the process of negotiating may hinder the sale.
If you would like us to recommend a Capital Allowance expert, we would be happy to do so.