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Capital Allowances Case - Property Apportionment

Capital Allowances Tax Case Review

Capital Allowances Were Not Based On An Apportionment

Tapsell (Mr & Mrs) & Lester (Mr) (trading as "The Granleys") V HMRC Commissioners [2011] UKFTT 376 (TC)

Tribunal Release Date: 8th June 2011


The taxpayers were unsuccessful in calculating plant and machinery capital allowances for the purchase of a second-hand care home based on an apportionment of the purchase price.


The taxpayers bought a second-hand care home in 2003 for £650,001.  In the contract £40,000 was allocated to “fixtures and fittings”.  In the tax year ended April 2003 the buyers claimed capital allowances on plant and machinery expenditure of £146,014.  This was based on a £106,014 apportionment of the purchase price for plant and machinery fixtures, plus the £40,000 contract allocation.


However, a couple of months later the sellers also submitted a £68,811 capital allowances claim for the same tax year.  No supporting details were provided.  The sellers emigrated to the USA and could not be traced.  HMRC disallowed the buyers’ capital allowances claim on the grounds that they had failed to show that the same expenditure on plant and machinery had not been claimed by the sellers. 

Relevant Law/ Practice

Capital Allowances Act 2001 (‘CAA 2001’) section 562 provides that a buyer’s capital allowances claim is by default based on a ‘just and reasonable apportionment’ of the purchase price.  This is a specialist valuation exercise and there is a well-established methodology for doing so.  To prevent capital allowances being ‘double-claimed’ by the buyer and seller on the same plant at the same time, the seller is required by CAA 2001 section 61 to account in their tax return for a ‘disposal value’.  This represents the value received for the plant upon sale.  And CAA 2001 section 196 says this must be based on an apportionment of the sale price.  Also, to prevent the buyer ‘ramping up’ their capital allowances claim, for plant and machinery assets upon which the seller has claimed allowances, the buyer’s claim is generally limited by CAA 2001 s185 to no more than the seller’s disposal value.

Tax Tribunal Decision

The first-tier tribunal found in favour of HMRC.  It held that the burden of proof fell upon the buyers to prove that the sellers had not claimed on the same plant and machinery.


The fact that the sellers had claimed did not prevent the buyers from claiming.  However, the buyers’ claim had to be capped to the sellers’ disposal value.  The tribunal was not bound by the £40,000 contract allocation (Fitton v Gilders & Heaton (1955) 36 TC 233).  However, despite the buyer having submitted an apportionment and the seller’s claim also being known, the tribunal bizarrely “… could not find any just and reasonable basis upon which to make an apportionment”.  Given the limited evidence and information about the sellers’ capital allowances claim and disposal value, the tribunal found HMRC’s approach was reasonable.  The taxpayer’s claim was limited to the £40,000 contract allocation.

Our View

In our view the taxpayer’s case was poorly argued and the decision was fundamentally flawed.  The tribunal’s decision was inconsistent with the facts and mistaken on key points of law.


The facts in question related to a third party’s tax affairs.  HMRC would have had better access to these, and powers to enquire into them than the appealing taxpayer.  In circumstances such as these (and where, in effect, the taxpayer is being asked to disprove a negative), it is far from clear that the ‘burden of proof’ lies upon the taxpayer as purported.  Furthermore, CAA 2001 section 196 requires the seller to account for a disposal value based on a CAA 2001 section 562 apportionment of the sale price.  This would have resulted in the seller being liable for a full ‘claw-back’, which could not possibly have been only £40,000.  In any event, that £40,000 was clearly intended to relate to chattels (ie, moveable plant) for SDLT purposes, and not plant fixtures, but was mis-described in the contract with the word “fixtures”.


The decision shows the importance of instructing a capital allowances specialist like The Capital Allowances Partnership Limited to properly investigate and apply the legislation as intended.  We are experienced at dealing with poor background information whilst still properly applying the law.


View and save Capital Allowances Tax Case Review - Tapsell & Lester V HMRC Commissioners as a PDF file. 

Tags for this article: capital allowances, plant, machinery, fixtures, apportionment

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