I have a client who has recently purchased a property – What can I do about capital allowances?
This is a common question and a situation we all too often come across, but does the fact that the transaction has taken place mean the Capital Allowances (CAs) are lost forever?
Of course with all things tax – the answer never straight forward.
Where to start.
First of all, look at your client who has purchased the property – ensure they are entitled to claim CAs, are they going to hold the property on their capital account or on the revenue account as trading stock. If the latter no allowances can be claimed. If it is a pension purchasing the property, no allowances can be claimed either. Otherwise we can keep looking.
Next, the contract and commercial property standard enquiry (CPSE) responses. Does the contract have any provision for CAs in it – is there a joint election under S198 in place? If there is, you have your answer to your CA question. Well, almost certainly anyway, see later for further clarification on this point.
If the contract is silent on CAs, the CPSE may provide the answers you are looking for, jump to question 32 to be enlightened. There will be a separate article on CPSE’s so I won’t go into great detail here. Question 32 relates entirely to CAs. The seller should have provided all the details you will ever need in respect of CAs within this section and thus provide the answers you are looking for. The reality – not so much! If this is left blank or N/A are the answers, it is likely because the importance of this section is not understood by the seller or they genuinely are not applicable, either way all may not be lost yet.
If the CPSE is silent on CAs, we can research further into the seller. What is their legal status, were they entitled to claim CAs in the first place? Did they hold the property on their revenue account as trading stock, or held in a pension, or even a non UK tax paying entity? If the previous owner was not entitled to claim CAs, your client may be able to claim first entitlement of the CAs apportioned to the purchase price. If they were entitled and nothing is in the contract, they may be lost forever, or the previous owner may have already claimed them all. Although in both scenarios a little history lesson will be required before any claim can be made.
The history of ownership needs to be established back to 1996, along with this, the CA position has to be established for this period as well. Sometimes this is straight forward, sometimes it is impossible. Either way it is a requirement if the ordinary rate pool CAs are to be claimed. If this cannot be established again, all may not be lost.
The next key date is April 2008 when the special rate pool for CAs was introduced. If the seller owned the property prior to this date, they would not have been legally entitled to claim special rate pool CAs on the property, therefore the purchaser has first entitlement to claim these CAs regardless (within reason) of what is included in the contract. We call this an “extra over” claim and is currently our most common outcome from this situation.
So, in summary:
1. Establish legal entitlement for your client to claim CAs.
2. Check the Contract and supporting CPSE document.
3. Check the legal entitlement for the seller to claim CAs.
4. Establish history of ownership back to 1996.
5. Remember April 2008…
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