Fixtures of a commercial property are items of plant and machinery that are fixed to the fabric of the building such as electrical systems and heating systems, air conditioning.

On 6th December 2011 the Government published Finance Bill 2012 which included major changes to the rules about claiming capital allowances for plant and machinery fixtures. These will affect all commercial property owners.

The changes make it important for business buying and selling property to seek expert advice from accountants.

What is the current position?

Currently a property buyer may claim capital allowances irrespective of whether the seller has ever made a claim.

What is the proposed change?

Going forward, a buyer will only be able to claim if the seller has ‘pooled’ the capital allowances qualifying expenditure i.e. notified it to HMRC in a tax return. ‘Pooling’ can happen at any time after the seller has built or bought the property, but must be done before the property is subsequently sold on.

What if the seller has not claimed allowances?

Where a seller has not claimed capital allowances the buyer will need to get the seller to agree to “pool” the expenditure so that it can be formally passed on to the buyer. If the capital allowances qualifying expenditure is not pooled by the seller in time then no capital allowances will ever be available to the buyer or any future owner of the property.

The seller can identify the amount of expenditure that should be “pooled” using a ‘just and reasonable’ apportionment of the original purchase price (although the amount may be restricted by past claims made by previous owners of the property).  This is a specialist tax valuation exercise and Crowther Associates Limited are able to liaise with qualified surveyors that can carry out this exercise.

Once the expenditure is “pooled” how is it passed to the buyer?

The new legislation makes it mandatory for the buyer and seller to agree an amount for the capital allowances and confirm this by a formal ‘section 198’ (or ‘section 199’) tax election.

If the parties cannot agree, either party can, within two years of the transaction, unilaterally refer the matter to a tax tribunal for an independent determination. In effect, either party can try to get the other to back down or be forced to incur the trouble and expense of going to a tribunal.

If a joint election is not agreed or the amount is not referred to a tribunal in time, then no capital allowances will ever be available to the buyer or any other future owner of the property.

When do the changes start?

The changes will take effect for all property transactions from April 2012 although there is a two-year period of grace until April 2014 during which some transactions will not be affected.

When should I act?

If you own a commercial property on which capital allowances have not been claimed then act now to “pool” the qualifying expenditure.  If not, this will add an extra obstacle if you try to sell the property in the future and could reduce the market value of your property.