The law relating to the tax relief available on capital allowances is complex, but it presents an opportunity for owners of non-residential freehold and long leasehold property to make significant tax savings.
However, there is also a risk, especially from a buyer’s perspective where the property is being sold, that if capital allowances are not dealt with properly in the sale / purchase documents, the opportunity to save tax can be lost permanently in relation to that property. The availability of any capital allowances should therefore be treated by sellers and buyers as an important part of the sale and purchase transaction.
It is crucial that the parties to a commercial property sale get advice from either their own accountant or, if their accountant isn’t comfortable giving the advice, from a capital allowances specialist. This advice should be obtained as early as possible in the transaction and ideally before solicitors prepare replies to standard enquiries.
Also, during the transaction, a buyer’s capital allowances adviser should keep in touch with the solicitor acting for the buyer and to contribute where appropriate to any clauses in the sale / purchase agreement that deal with capital allowances.
I have set out below a brief guide on what capital allowances are in the hope that readers of this post take the opportunity to seek detailed advice on whether they can (and if so, how to) claim the tax relief available.
What are capital allowances?
They are sums of money that a business has spent on fixed assets and which can be deducted from its profits before taxes are calculated. For example, such assets can be fixtures in a building and can include a wide range of items from water systems, lifts and air conditioning to door locks and handles
How do they arise?
Capital allowances in relation to property transactions come into play when a business buys non-residential buildings either on a freehold basis or by taking a long lease for a premium.
How are they calculated?
There are rules governing the various ways allowances can be calculated and claimed. Which rules apply depend on a number of factors including when the owner bought the property, whether the owner or previous owners have (or could have) pooled or claimed allowances and whether there has already been a “section 198 election”, fixing the maximum value of the assets.
If you are either buying or selling commercial premises and your accountant is not in a position to give advice on capital allowances, Guest Walker can point you in the direction of a number of experienced specialists who will be able to advise you on the process and potential claim for the tax relief.
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