Capital Allowances: Selling Property

A seller may first become aware of capital allowances when selling a property, especially if they are selling a property that has been owned for some considerable time. Capital allowances function as a tax relief through which qualifying capital expenditure (incurred when purchasing particular assets) can be offset against your taxable income. This can result in significant tax savings for individuals (in the form of Income Tax) or companies (in the form of Corporation Tax), and maximise the value of these assets.

As with any tax matters, and particularly tax relief or allowances, making a claim can be complicated. There are several types of allowances that may apply and, when claiming capital allowances during the sale of a property, compliance can be challenging without expert support. At Monetta, our capital allowance experts have the knowledge and experience to examine the relevant details and make the claims process simple for you.

We can help you determine whether you can obtain capital allowances so that you do not miss out before selling your property, and help you claim allowances that you are owed. We may also be able to identify other types of tax relief that you are eligible to claim. Get in touch with our team today to learn more about how we can help you by calling your local Monetta office. You can also use our online enquiry form to request a call back.

How Monetta Can Help

In any property transaction, there may be opportunities for buyers and sellers to claim capital allowances and thereby to benefit from this reduction in their tax liability. The capital allowances experts at Monetta can examine the terms of a particular property transaction and evaluate the correct approach position for capital allowances. This will identify whether or not you can claim, and how we can maximise your return.

The sale of a property could be the first instance the seller becomes aware of the benefits of claiming capital allowances. There could be a number of reasons behind this, including lack of awareness of the capital allowances legislation or not making profits initially and therefore the benefit being overlooked. However, this does not mean it is too late, and it is vital to instruct an experienced advisor to assess your position and offer expert advice.

Alongside identifying qualifying assets and capital expenditure, we can discuss other tax relief opportunities that may benefit you, advise on the best tax position for capital allowances purposes, and even advise you on structuring your transaction to maximise the value you will gain. Our advisors support solicitors and surveyors with capital allowance insights, which puts us in a strong position to consider all of the relevant variables and give high quality, practical support.

How Do You Determine if the Seller Can Claim Capital Allowances?

At Monetta, our capital allowances specialists begin by examining all of the relevant information about a transaction to determine which allowances may be available. There are several types, ranging from buildings allowances for construction to plant and machinery allowances for installations.

Solicitors often use the Commercial Property Standards Enquiries (“CPSE”) - or their own version - when establishing facts about the property. Monetta's advisors take the same approach. One of the enquiries relates to capital allowances, and this section attempts to establish the correct starting point with respect to capital allowances. 

Typically, the first question in the capital allowances section of the CPSE is as follows:

“Do you hold the property on capital account as an investor/owner-occupier, or on revenue account as a developer/property trader as part of your trading stock?”

The purpose of this question is to establish whether the seller could have claimed capital allowances at an earlier point. For example, if the property is held as trading stock then the seller would not have been entitled to claim any capital allowances. On the other hand, if the property was held as investor/owner-occupier, the seller could have been entitled to capital allowances. In these cases, a follow-up question is asked to establish if a claim had been made:

“Have you claimed capital allowances on plant or machinery fixtures or allocated any expenditure on such fixtures to a capital allowances pool?”

If capital allowances have been claimed, the next aim would be to ascertain on what items and the value of the tax written down value (TWDV). At this point, the seller has a decision to make: do they want to offer the capital allowances at the TWDV or at another value?

Agreeing at the TWDV is generally considered the fairest approach, as the seller retains the benefit of the allowances and passes the remainder to the purchaser. The seller may alternatively agree to pass all the allowances. In certain situations, it may prove to be beneficial to pass all the capital allowances. For example, if selling to a higher-rate tax payer, the allowances could be more valuable to the purchaser.

The third option is to agree to a £1/£2 election. Depending on what allowances have been claimed, the seller could suggest a £1/£2 CAA2001 s198 election. This means they can continue to benefit from the capital allowances even after the sale of the property as long as there are taxable profits. While this might sound like the best option, it is worth careful consideration of the figure for a CAA2001 s198 election. There is little merit in offering a £1/£2 figure if the allowances cannot be utilised, and in these cases another approach may be preferred.

Is it Worth Claiming Capital Allowances?

Even though the property is being sold, there may still be a financial benefit for the seller to claim capital allowances. There may also be benefits to the seller if they decide to pass on the savings to the buyer, so it is important to explore this possibility. The options available are to:

• Prepare a capital allowances claim, amend the previous tax year and use the allowance for the current year-end. If you are mostly claiming plant and machinery allowances, then the benefit of two years of claim may warrant the effort. In this case, you would pass the TWDV to the purchaser.
• Prepare a capital allowances claim and enter into a CAA2001 s198 election for £1/£2, thus retaining the benefit of the allowances until they are utilised. This could be beneficial when you have other property investments or income that could be offset with the capital allowances. Despite ling the property, the election will allow the seller to retain the unclaimed capital allowances.

If you do not need the capital allowances, there is also an opportunity to pass any identified reliefs onto the buyer, which can have benefits of its own.

Should You Pass Capital Allowances to the Buyer?

If the seller does need capital allowances, they will be required to go through a process called mandatory pooling in order for the capital allowances to transfer from the seller to the purchaser. An outline of this process is as follows:

• The parties agree who will take the benefit of the capital allowances.
• The seller undertakes a CAA2001 s562 apportionment of the purchase price. If the seller owned the property before April 2008, they can only claim for plant and machinery allowances only. However, if they purchased after April 2008, the claim would be for both plant and machinery allowances and the integral features allowance.
• The seller will pool the allowances within their tax computations.
• Both parties will sign the CAA2001 s198 election at the agreed value.

Capital allowances can still be useful for the seller of a commercial property, even if they are willing to pass the tax benefit on to a purchaser. In most cases the purchaser will be able to utilise the capital allowances as part of their annual investment allowance (AIA) which, subject to tax capacity, could provide the buyer with immediate tax relief. This can act as a further incentive and make the purchase more cost-effective for the buyer. Claiming allowances against their AIA would allow the buyer to maximise the market value of the property, which can make the deal a more attractive prospect at no cost to the seller.

Why Choose Monetta?

Monetta has a wealth of experience in helping organisations in the UK to claim capital allowances. From examining the financial position of your property ownership to identify qualifying expenditure and calculate capital allowances accurately, to filing the necessary tax return in the relevant accounting period, we can support you at all stages of the process. That way, you can avoid missing out on capital allowance benefits in the most efficient way possible.

We begin by taking the time to understand your specific needs and what you are trying to achieve, which means that we can tailor our advice to your situation. Any tax matters demand a comprehensive and thorough understanding. Thanks to our experience in industries throughout the UK, we are familiar with any special rules that may apply, and can help to maximise the tax relief you are able to claim.

With a network of offices throughout the North West, we can scale our services to support commercial property owners and businesses throughout the country. Our accountants can also offer advice on Capital Gains liability when you sell a property, and guide you on structuring a deal that will minimise your tax burden.

Contact Us

Seek professional advice from Monetta and claim capital allowances easily and efficiently, or pass tax relief savings to your buyer and create a further incentive to close the deal. Our experts can help you to consider the benefits of minimising your taxable profits and get the most from your capital expenditure.

Call your local Monetta office or use our online enquiry form to request a call back. Alternatively, you can also look at our team page to learn more about our expert advisors and how they can help.