TT199: Timing is everything!

Commercial Property Transactions

As your business grows and expands, there comes a point where your business will have to move to larger commercial premises. This will undoubtedly involve the purchase of new larger commercial properties.

From a tax perspective, most of us are aware of the additional Stamp Duty Land Tax (SDLT) costs that may be payable on acquisition and the possible complications of VAT. One area that has been often overlooked but has come into sharp focus since recent legislative changes is the possibility of claiming capital allowances on ‘fixtures and fittings’.

Capital allowances are often referred to as ‘the tax equivalent of depreciation’. The capital allowances regime was designed to allow businesses to account for the fall in value of relevant plant and machinery such as certain fixtures and fittings.

Since April 2012, new rules have been introduced before the new purchaser can claim capital allowances on relevant fixtures and fittings. The first requirement is known as the ‘fixed value requirement’.

For sellers that have claimed capital allowances, the fixed value requirement requires the seller to bring in a disposal value for the relevant fixtures and fittings by way of a joint election with the purchaser. If a joint election is not possible within two years of acquisition by the new purchaser, an application to the First –tier Tax Tribunal can be made. An application to the First-tier Tax Tribunal has to be made within two years of the acquisition.

From April 2014 a new hurdle has been introduced known as the ‘mandatory pooling requirement’ for sellers who could claim capital allowances. This means the seller must have claimed capital allowances or have pooled the expenditure. Failure to do this can result in the loss of future purchasers claiming capital allowances on existing fixtures and fittings.

What action should I take before a commercial property transaction?

Failure to consider these rules can have adverse financial consequences. Whether you are the seller or buyer, you should contact your Barnes Roffe contact to discuss this further as a number of practical steps can be taken.

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