If you are a commercial property lawyer reading this, you will doubtless be aware of Capital Allowances.
What are they?
Capital Allowances are a form of tax relief available to commercial property owners. The tax relief can be anywhere in the region of 15% to 45% of the original purchase price of the property dependant on the usage of the building and are the tax element of the integral fixtures and fittings of a commercial property. Examples include door handles, air-conditioning systems, alarm systems, lifts, CCTV, roller shutter doors………essentially, any second fix items.
The builder of your client’s commercial property would not have been able to claim tax relief as, at point of construction, these items will have been purchased and installed into the building for a profit and would therefore be classified as “stock in trade”. As soon as the building is sold, the new owner inherits the allowances. In addition, if the allowances have never been claimed in the lifetime of the building and your client is the current owner, they are also entitled to claim. Capital allowances can also be claimed on any post purchase expenditure on the property for refurbishments or extensions.
How do I know if my client can claim?
Section 19 of the Commercial Property Standard Enquiry form asks all pertinent questions in relation to Capital Allowances. An example being;
19.3 If the Seller or any person connected to the Seller (within the meaning of sections 575
and 575A of the CAA 2001), has not submitted a claim to HMRC for capital
allowances in respect of any Fixtures to be included in the Transaction, will the Seller
be willing to agree in the contract that no such claim will be made by the Seller or
any person connected with the Seller?
Answering “not applicable” or “not so far as the seller is aware” (which I am reliably informed happens), may well come back to bite in the future.
New legislation from April 2014
From 1st April new legislation is enforced which introduces ‘mandatory pooling’ of integral fixtures and fittings for Capital Allowance purposes. It will be the responsibility of the seller to produce a schedule and a valuation of all the integral fixtures and fittings. If a figure cannot be agreed then both parties have 2 years to apply to HMRC for a first tier tribunal to settle any dispute and confirm a figure for the allowances.
The key difference however, and where the element of risk for you comes in, is that if Capital Allowances are not claimed at point of sale then they are lost forever. Factor in the percentages mentioned above, you could be looking at considerable financial losses for your clients.
But we don’t advise on tax matters…
I am sure you have a disclaimer in your terms of business to this effect. However, is this not a case of acting in the best interest of your client? Consider the worst case scenario: not completing section 19 of the CPSE form to the best of your knowledge may result in negligence claims down the line. The knock on effect of claims being increases in Professional Indemnity insurance, damage to your reputation and worse…losing your business.
Managing the risk
So we agree that vast majority of lawyers are not tax specialists. But you can protect yourself and your firm by acting in the best interests of your client and ensuring you complete section 19 of the CPSE form to the best of your ability. You might not be a tax specialist but there are many out there who are….so if you have a client who is selling any commercial property from a care home to a car garage, an office to a hotel, do the initial investigation and introduce them to a tax specialist. You have met your obligations and will very likely, have a happy (and potentially) better off client to boot….! And you will be safe in the knowledge that it will not come back to bite you in the future.
If you would like to discuss a risk assessment service on your historic files, feel free to contact Paul Greasley of P1 Consultancy – firstname.lastname@example.org
Legal Eye Ltd
6 March 2014