- Purchasers of commercial properties containing certain fixtures can often claim capital allowances on the depreciation of those assets. The rules on capital allowances are to change from April 2012.
- Value of fixtures must be agreed between seller and buyer within two years of completion of the purchase.
- Increased consideration must be given to capital allowances on completion of sale and purchase of a commercial property containing certain fixtures.
- Failure to agree the value of fixtures between buyer and seller within two years will prevent capital allowances ever being able to be claimed on those fixtures.
Capital allowances provide tax relief for the depreciation of certain capital assets. In commercial property transactions these assets are principally plant or machinery, including most fixtures in a building used by a business. The depreciation applied to those assets in the accounts is not deductible for tax purposes. Capital allowances are calculated as a percentage of the capital expenditure incurred, and are deducted from the income or profit of the business.
HMRC has become concerned that these allowances are being abused – whether intentionally or otherwise. It has therefore introduced new rules which will apply from April 2012. HMRC estimates that this will increase receipts by approximately £30m per year.
The new rules make it harder for purchasers of these fixtures to claim allowances where they have been claimed by previous owners.
The availability of capital allowances to a purchaser of fixtures is now conditional on:
- Previous business expenditure on qualifying fixtures being pooled before a subsequent transfer onto another person; and
- The seller and purchaser using one of two existing procedures to fix their agreement of the value of the fixtures transferred within two years of the transfer.
In practice, the seller and purchaser will most commonly elect to agree the value of the fixtures transferred within two years of the sale. Once the value has been agreed, notification must be given to HMRC.
Failure to agree the value of the fixtures means the purchaser, and any subsequent purchasers of the fixtures cannot claim any unused capital allowances.
The rates at which capital allowances can be claimed are reducing from 20% to 18% for the main rate pool of plant and machinery and 10% to 8% for the special rate pool of plant and machinery.
The Annual Investment Allowance is also being reduced from £100,000 to £25,000 from April 2012.
HMRC argues, and industry generally agrees, that by providing statutory rules for fixing a value of fixtures within two years of the sale, new owners will be assisted in making a legitimate claim.
Following the March 2012 budget a technical amendment to the new legislation will also enable plant and machinery capital allowances to be claimed by a new owner on any fixtures expenditure that has not been relieved under the Business Premises Renovation Allowance scheme.