My Client is about to exchange on a commercial property purchase – Are we too late to look at capital allowances?
This is a common question and one that needs serious consideration. No is the answer, the deal isn’t done so they can still be looked at. However, when exchange is about to happen on a property purchase, it is usually the most emotionally sensitive time, everything looks set to go ahead and throwing in complications at this late time can cause frustrations. Equally, doing nothing isn’t necessarily the right option either. Looking back at a transaction six months after purchase when the emotions of the deal are a distant memory, saying we didn’t think it was the right time won’t wash either.
The first step is to look at the contract, if capital allowances (CAs) are included they have already been looked at. There should be a joint election under S198 in place, check to see if the figures are correct and review the build up to any figures included.
If nothing is included in the contract relating to CAs review the Commercial Property Standard Enquiry (CPSE) document associated with the contract at question 32 to see how capital allowances were dealt with by the seller. If this is unclear, at this late stage of a deal, it might be difficult to obtain all of the necessary information.
It is as this point we would suggest speaking to your client and requesting a clause to be included in the contract which includes the following points, but will not affect the transaction per se.
- Both parties agree that capital allowances will be looked at within two years of completion of the sale.
- That the seller will co-operate with the purchaser and provide necessary documentation required for the preparation of a capital allowances claim
- That the seller warrants to pool the capital allowances (S187) and then enter into a joint election under S198
Adding a clause to this affect will enable the purchase to go through, with an agreed commitment by the seller that this will be looked at after exchange. If this clause is not included, although possible, it is unlikely that the seller will retrospectively enter into a joint election under S198 after the sale.
Including this clause does not mean that CAs are definitely available to the purchaser, the usual due diligence will still be necessary to confirm entitlement. It means the CAs can be completed without rushing and in a timescale that suits the purchaser. Think about when their tax liability may be due and the process could be timed to fit in with their accounting year end, not just the purchase date, as long as it is within the two year period from the purchase date to make a claim
- Check the purchase contract
- Check the CPSE responses
- Include CAs in the contract if possible
- If not, include a holding clause in the contract
- Complete the CA process
- Enter into a joint election under S198
This article is for information purposes only and does not constitute advice. For further information please feel free to contact us.
This article was written by Iain Stamp MRICS from Elect Capital Allowances Limited, electca.co.uk 01889 740 405
Regulated by RICS