Capital Allowances – An Overview
Louise Barth
12 February 2013
Today’s objectives
•Basics – Get the correct tax relief
•Mechanics of making a claim
•Impact of changes introduced in FA 2012
The Basics
•Fixtures
•UK Tax relief
•Commercial property
•Available to all tax payers
•Individuals and businesses
Property related allowances
•Investors
•Landlords
•Owner occupiers
•Tenants
•All except residential
Two situations
1. Construction
•New build
•Alteration
•Refurbishment
•Fit out
•Landlord’s contributions
2. Second-hand purchases
New construction claims
Based on actual costs – quote or final account
•Drawings - before and after construction
•Specification – scope of works
•Variations – adds and omits
•Survey
•Identify builders work in connection
•Base cost asset plus prelims and fees
•Total value each fixture
Second-hand purchase claims
Apportionment purchase price – s562
•HMRC stipulates “Just and reasonable”
•Formula approach
•3 Components:
1. Land value – bare site
2. Building cost- replacement cost
3. Fixtures cost- replacement cost
Three main categories plant & machinery
1. General plant – 18% per annum
2. Integral features – 8% per annum
3. Enhanced capital Allowances – 100% FYA
Others to be aware of
Long life assets
Short life assets
BPRA’s
IBA’s
1. General plant – 18% per annum
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Carpets
Signage
Sanitary ware
Demountable partitions
Fire Alarms
BMS
UPS
FF&E
Racking
Dock levellers
2. Integral features – 8% per annum
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Electrical systems
Heating
Air-conditioning
Ventilation
Lifts
Cold water
External solar shading
3. Enhanced Capital Allowances(ECA’s)
100% tax relief in year of expenditure
• Encourage green investment
• Energy efficient equipment
• Water saving technologies
• Source equipment from Government list
• Energy technology list ( ETL)
• Tax credit available 19% if loss making
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Boiler controls, lighting, air-con, insulation, rain
water harvesting, low flush WC’s
How do we go about claiming once we
have ascertained the value of the
fixtures?
•Allowances are pooled according to type
•Claimed annually
•In a Tax return – not an automatic
allowance
•Historic claims possible
•Allowances not lost
What are they worth?
£300,000 qualifying expenditure – Corporation tax
General
plant 18%
£
Integral
features 8%
£
ECA’s 100%
FYA
£
Total value
£
Allowances
100,000
100,000
100,000
300,000
Year 1 WDA
18,000
8,000
100,000
126,000
Cash saving
@ 21%
3,780
1,680
21,000
26,460
What are they worth?
£300,000 qualifying expenditure – Income tax
General
plant 18%
£
Integral
features 8%
£
ECA’s 100%
FYA
£
Total value
£
Allowances
100,000
100,000
100,000
300,000
Year 1 WDA
18,000
8,000
100,000
126,000
Cash saving
@ 45%
8,100
3,600
45,000
56,700
Pooling allowances
Year 1
additions
• Purchase claim
• Subsequent fit out core areas
Year 2
additions
• Refurbishment first floor
• New carpets
Year 3
additions
• Refurbishment 5th floor
• New CCTV equipment
Pool – plant & machinery allowances
What happens on sale of the property?
•When property changes hands the fixtures
are transferred too
•A system has been is place since 1990’s
which enables us to agree the transfer value,
known as the disposal value of the fixtures
Joint election – s198 CAA2001
When the seller /prior owner has made a
claim:
•Seller can keep all the allowances
or
•Seller can pass all allowances to the Buyer
or
•They can share the allowances
•Disposal value can not exceed original cost
•Can not claim twice on same fixture
Joint Elections – s198
•Established mechanism – transfer values
•Stating values in sale agreement is inadequate
•s198 legally binding on both parties, inc HMRC
•2 year time limit from date of completion
•Must be executed to be valid
•Both parties must submit to their Tax Inspector
•Excludes contribution allowances
•Excludes Chattels
S198 Election – draft carefully
Name property
Interest and Title
Date of completion
Purchase price £
Name & address seller
Name & address buyer
Unique tax reference (UTR)
Amount fixed by the election £
List Integral features £
List General plant £
When there is no prior claim
The buyer is free to make an apportionment
claim based upon their purchase price
A joint election can only be entered into if a
seller has brought a disposal value into
account ( made a claim)
New Fixtures rules introduced FA2012
Introduction of two requirements that must
be satisfied before a buyer can make a claim
1. Statutory Election – s198
2. Mandatory pooling
From April 2012
First condition – statutory election
If a buyer wants to to make a claim
Options:
1. When the seller has made a claim – use election
• If agreement cannot be reached – take the matter
to a Tax Tribunal
1. When the seller has not claimed – check if prior
owner has claimed
2. In the absence of a signed s198 election a written
statement must be obtained by the buyer which
details the disposal value
From April 2012 (continued)
If buyer has no use for the allowances, e.g.
o/s company or a pension fund, the buyer is
advised to take the necessary steps to
identify the allowances and establish a
disposal value. This will preserve the
allowances for a future buyer
Failure to do so will preclude all future
buyers from claiming on these allowances
From April 2012
Property changing hands
Invest A
Ltd
• Purchase
• June 2009
• Claim
£1M
Pension
Fund
Sells
• Purchase
• Aug 2012
• S198
• £450K
Invest B
Ltd
Sells
• Dec 2013
• S198
• £450k
• Pool £450k
Purchases completed before April 2012
•Old rules apply
•No time limits
1. Owners of fixed plant and machinery should
review existing systems and procedures
2. Keep meticulous record of expenditure incurred
on fixtures
3. Ability to provide details on disposal
From 1 April 2014
Second condition - Pooling requirement
In order for a buyer to claim:
•Applies to Fixtures purchased on 1 April
2014 onwards
•All sellers will be required to pool their
expenditure upon disposal
•Burden of proof lies with buyer
From April 2014
Pooling requirement – Warning!
When a seller has not claimed and is not
interested in the allowances:
•No expenditure has been pooled
•S198 not possible
•Buyer will not be able to claim
•Allowances are lost forever to all future owners
•Buyer can not refer the matter to the Tax tribunal – no
disposal value to discuss
Summary – FA2012 changes
1. Pre April 2012 transfer - old rules
2. April 2012 – 2014 Transitional period
First condition has to be met if seller has
claimed
3. From April 2014 – two conditions have to be
met in order for the buyer/future owner to
be able claim
1) Statutory election
2) Mandatory pooling
What should we be doing now?
•Early involvement – correct tax relief
•Correct paperwork
•Post 2008 unclaimed allowances- unlock
•Timing
•Pre – contract DD
•Buyer can determine seller’s disposal value
•Tax tribunal ??
Louise Barth
Louise.barth@altusgroup.com
020 7636 7347
07775 021 1365