Tax position for fixtures in commercial buildings – rules changed on 1st April 2014 could seriously impact commercial property owners

Any purchasers of commercial buildings such as a factory or offices must jointly elect to fix the value of the fixtures in the contract to be able to claim any capital allowances on those fixtures. 

It is often in the purchaser’s interest to have this figure as high as possible, to obtain capital allowances and tax relief on the cost. However it is often in the vendors’ interests to do the opposite! It would be wise therefore for any one intending to sell a commercial property to seek advice and where possible, get the value of plant and integral fixtures and fittings mentioned in any sale particulars or contract terms, whilst ensuring care is taken not to put off any prospective purchasers. 

taxation changes - commercialAs of 1st April 2014, a new pooling requirement means that unless the seller has pooled their expenditure in respect of the fixtures within the building, either by allocating the expenditure to a capital allowances pool or by claiming a first year allowance or annual investment allowance, the purchaser will not be able to claim any capital allowances on the amount agreed for the fixtures. 

Any failure to meet the above requirements will result in the loss of any ability for not only the purchasers, but any future owners, to claim capital allowance on the fixtures, which consequently could have an impact on the sale price of the building. 

For example, in the case of a factory being bought for £2m, a fair apportionment to the value of integral fixtures and fittings (shelving, racking, lighting, toilets etc) of £200,000 could save the sole trader or partnership purchaser tax of £84,000 at 42% or cost the vendor this figure if his “tax pool” is nil, as it could be for many clients who have claimed 100% relief over the years.  

With regards to non-tax paying entities such as pension funds, there are special rules in place that may enable them to pass the benefit of such allowances to a purchaser. 

The effect of these new rules mean that more detailed information will be required on the tax history of the fixtures in the building before any proposed transaction. 

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Specialist surveyors can create capital allowance schedules for plant and machinery to assist your accountant with maintaining the value of your commercial property, offsetting tax, and reducing the proportion of your buildings expenditure paid for pre-or post tax. Talk to a surveyor with no obligations on the link below:

SRJ                                                                                                                                         01.07.14

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