Don’t miss out on property fixtures tax relief

A change in the rules from April this year means that buyers and sellers of property must pay more attention to the valuation of fixtures and fittings so that capital allowances can be correctly claimed.

Changes brought in by HM Revenue & Customs this year are largely designed to reduce double claims where both seller and buyer claim on the same item. However, advisers say many miss out on these valuable allowances because they are not aware of what can be claimed.

The new rules mean where a seller has already claimed allowances on fixtures and fittings forming part of a building (see capital allowances box for examples), the seller and buyer must agree and fix the sale price of those fixtures between them.

They also have to sign a document (a Section 198 election) setting out their agreement and have up to two years after the sale transaction to complete the whole process.

“The value of the allowances can be anywhere between 10% and 40% of a building’s purchase price, so owners really cannot afford to overlook this relief, particularly now that agricultural buildings allowances are no longer available,” said Sam Kirkham, associate partner with accountant Albert Goodman.

“Both parties will have conflicting needs on what the values should be and this should form part of the sale negotiations.

“If they do not agree on a value, the issue can be referred by either party to a tribunal. If a value is not agreed or referred in time, the buyer will not be able to claim capital allowances on those fixtures.”

This means no subsequent owner of the property will be able to claim capital allowances on those fixtures either, which could affect subsequent sales and prices.

Where no claim for capital allowances has been made on a fixture then under the new rules these can be claimed by the buyer.

“In our experience, too many businesses do not claim all the allowances that are available to them on the fixtures in their buildings, either because they do not know the history of the property or they are not fully aware of what a claim can be made on,” said Miss Kirkham.

“Sellers have often only claimed allowances on a small proportion of what they can claim on and it is therefore vital capital allowances are considered at the pre-transaction stage.

“It will be important for the seller’s accountant to have a clear history of the capital allowances that have been claimed on a property to ensure a sale is not held up in these negotiations.”

Capital allowances

Where property is used in a business, tax relief known as capital allowances can be claimed on the cost of many items.

Most businesses can claim 100% relief on the first £25,000 of capital expenditure, in an accounting year, on plant and machinery. After this the following rates apply depending on the class of spending:

Capital allowances can be claimed at 18% on plant and machinery. Typical fixtures in a building qualifying for plant and machinery allowances include silos, slurry storage and silage pits, grain dryers, conveyors, certain poultry equipment and parlour equipment, security and fire protection systems, computer and communication equipment, stand-alone fans and heaters and certain specialist flooring and drainage systems required for the purposes of the trade.

Allowances at 8% can be claimed on integral features which form part of a building. In farm buildings these include plumbing and electrical systems such as internal pipework, cabling, lighting, switches, boilers, wiring and thermostats, cubicles and many other items. In cottages used in the farm business they would include bathroom and kitchen fittings, for example.

Don’t miss out on thousands worth of allowances

For example, in a building costing £100,000, with £40,000 of fixtures and fittings qualifying for capital allowances, tax relief would mean a total reduction in the business’s tax bill in the first year of up to £14,000, with a total reduction in the business’s tax bill over the useful life of the fixtures of up to £20,000.

More changes from 2014

Even more stringent requirements will come in from April 2014 if proposals in the draft Finance Bill come into law. These would mean that whether allowances have been claimed or not, the seller must identify all fixtures in the buildings, and “pool” the expenditure before the sale takes place to enable the buyer to claim capital allowances.

If this is not done, future owners of the property will not be able to make a capital allowance claim on current fixtures.

Sellers will need to get their accountant, lawyer and land agent to work together at an early stage to make sure all is in order so that sales can proceed smoothly.

More property news

Look out for more property features in our Farmland and Property supplement in Farmers Weekly on 25 May.

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