Banking Tax Finance
Winter 2012
In this Issue
Capital allowances on fixtures in property transactions
It’s all about the timing
Actions you may wish to take
Technical summary on changes
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Capital allowances on fixtures in property transactions
The draft legislation affecting capital allowances on fixtures has now been revealed. Fortunately, some of the more onerous proposals initially put forward by the government have been withdrawn, following the consultation process and we now have some rules that were broadly supported by the professions.

There are some wonderful new terminologies to embrace such as: pooling requirement, fixed value requirement, disposal value statement requirement, on which more can be found in our technical summary via the link below.

The new rules are all about the due diligence that is required in respect of claims on plant and machinery fixtures and it is useful to remember that there is already a great deal of statutory diligence needed, some of it dating back to the Finance Act 1985. The new rules simply add another layer, summarised below:

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It’s all about the timing
Sales before 1 (or 6 April) 2012 – no change, the existing rules apply.

Sales during the transitional period (from 1 (or 6) April 2012 to 31 March (5 April) 2014).
- Pooling requirement doesn’t apply.
- Fixed value requirement or disposal value statement requirement needs to be satisfied where the seller has claimed capital allowances.
- To satisfy the fixed value requirement, the seller needs to have entered into a section 198 / 199 election with the purchaser. To satisfy the disposal value statement requirement, the seller must provide to the purchaser (or subsequent owner) a written statement of the disposal value brought into account.

Sales on or after 1 (6) April 2014.
- The pooling requirement now kicks in as well as the fixed value requirement or disposal value statement requirement.
- The main consequence is that if the seller could have claimed allowances, then allowances will be denied to the purchaser (and any subsequent owner) unless the expenditure on fixtures was pooled in addition to a joint election or a disposal value statement.

When added to the diligence requirements already in place, there is now an even greater rule complexity and a real risk that capital allowances could be lost if the correct advice is not received/given on time. On commercial property that has ‘lost’ its allowances, this event could also permanently devalue its future investment value, and so has potentially far-reaching implications, especially to advisers on both sides of a future property transaction.

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Actions you may wish to take
Don’t wait until after the purchase or sale transaction!
This will almost certainly result in clients paying more tax than they need to.

Review all capital expenditure on buildings now.
These new rules provide an incentive to review all historic expenditure on property for unclaimed capital allowances; the benefit could be reduced tax liability and an increased cash flow.

Advisers will need to put procedures in place that will give the best advice to clients in every situation.
Any property transaction has a tax implication, whether it is the grant of a lease, the sale or purchase of an existing building, new build or alteration works. A systematic approach to all expenditure will now be required and advice may be needed from a recognised capital allowance specialist.

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Technical summary on changes
Our technical summary on changes, can be found here

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Program, Cost, Consultancy

Whilst every effort has been made to ensure accuracy, information contained within our newsletter may not be comprehensive and recipients should not act upon it without seeking professional advice.