With the publication of their response on 6 December 2011, HMRC have now sought to clarify that “expenditure on a fixture can only be written off once against taxable profits over its economic life”. To this end the new legislation places responsibility onto the seller and purchaser of commercial properties to agree what level of pooled expenditure is to be sold/purchased as a result of the property transaction. This takes effect for all expenditure incurred on or after 1 April 2012 for Companies (6 April 2012 for Individuals and Partnerships).
This agreement is to be achieved using the current legislation under:
- Section 198/199 CAA election, where the seller & purchaser make a joint election, which effectively fixes the value of the pool.
- Section 563 CAA where the parties are unable to agree on a value within two years of the transaction, resulting in the matter being referred to the First Tier Tribunal for a decision.
The new legislation makes the availability of Capital Allowances to a purchaser of fixtures conditional on the following three points:
- Previous qualifying expenditure being pooled prior to any property sale.
- The seller and purchaser agreeing (within a two year period from the transaction date) to fix the pool value.
- A written statement from a past owner confirming the disposal value of the pool that he has some time earlier been required to bring into account.
Quite clearly the first two bullet points will be the main focus for the majority of property transactions. With the onus being placed on the seller/purchaser to agree figures there is a clear opportunity for the accountancy profession to maximise the tax position for their client, by ensuring all qualifying items are pooled prior to the point of sale enabling a S198 election to be put into the sale agreement. Our full briefing on the Capital Allowances Consultation Response can be found on our website here which also details HMRC’s revised legislation on items that qualify for Feed-in Tariffs and Renewable Heat Incentives.