Legislation will be introduced to effectively force the seller of a property to include a claim for capital allowances on fixtures in a tax return before they sell those properties if the buyer is to be able to claim any allowances. The buyer and seller will also have to agree the value to be placed on those fixtures for tax purposes at the time of sale.

Baker Tilly analysis

A consultation on capital allowances on fixtures was announced in Budget 2011. The outcome of the consultation has resulted in some significant changes to the original proposals. Firstly, instead of having to make claims for fixtures within one or two years of incurring expenditure, a seller must now make sure that a claim has been made before the property is sold. Secondly, there will be no new mechanism for agreeing the value of fixtures. Instead, HMRC are relying on the parties not wanting to go to the Tribunal to force them to use the existing election under the Capital Allowances Act. Failure to do either of these two things will mean a buyer will not be able to claim allowances on all the fixtures within the acquired property , which could affect the sale price.

In detail

In its consultation following Budget 2011, HMRC put forward three main proposals:

• To claim capital allowances on fixtures, a buyer would have to make their initial claim within one or two years of incurring the expenditure.
• On the sale of a property, the buyers and seller would be obliged to agree a value of the fixtures for tax purposes.
• The value to be agreed should be based on a form of notional tax written down value to ensure that the right to allowances followed economic ownership of the assets.

The draft legislation reflects significant changes to these proposals, following the consultation process, as follows:

• There will be no time limit on a buyer making a claim. However, a claim must be made by the vendor in an accounting period prior to that of sale, otherwise the buyer will not be able to make claims on all the fixtures in the property (which could affect the sale price).
• There will be no new mechanism to agree a value on sale. However, if no election is made under S.198/199 Capital Allowances Act, and there has been no referral to the Tribunal within the 2 year time limit, no allowances will be available to the buyer. This should result in elections becoming much more widespread, as very few taxpayers are likely to want to go to the Tribunal.
• There will be no change to the rules that determine the limits within which the values agreed under elections must fall.