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Capital Allowances Training for Solicitors

Capital Allowances - New Rules, New Risks

Essential Training for Conveyancing Solicitors

From April 2012, Finance Act 2012 introduced draconian new capital allowances rules for buyers of commercial property (FA 2012 section 43 and Schedule 10, introducing new sections 187A and 187B of the Capital Allowances Act 2001).  If these rules are not met, then the property buyer will irrevocably lose the ability to claim tax relief for the plant and machinery fixtures (such as electrical installations, heating installations and sanitary ware etc).  And so will any future buyer of the property.  This is even anticipated to damage the future market price of affected properties.

Onus on conveyancing advisers

Traditionally, little attention has generally been paid to capital allowances during the conveyancing process because this was something that the accountant could deal with later.  However, under the new FA 2012 rules this has all changed.  Capital allowances need to be addressed at the time of the transaction or it will be difficult, if not impossible, to resolve afterwards.

 

In practice, conveyancing solicitors are likely to find that they are the only advisers in a position to deal with this and will be expected to do so.  Therefore, the onus has switched firmly from accountants to solicitors.

The role of capital allowances specialists

Specialists from The Capital Allowances Partnership Limited have already been instructed in an expert witness capacity in cases where conveyancers have faced fee disputes and professional negligence actions about their handling of capital allowances during property deals.  And we expect the likelihood and severity of this to increase under the new rules.

 

As a result we have recently seen greatly increased interest and requests for help from conveyancers.  In response, we have designed specific training sessions that explain the requirements of the new rules and how these impact the role of the solicitor, and outline the assistance that can be provided by capital allowances specialists like us.  CPD accredited sessions lasting between one and three hours can be tailored to your specific requirements.

The new rules

In summary, where a property owner since April 2012 has claimed capital allowances for plant and machinery fixtures, then the buyer must formally establish a value for those fixtures in a timely manner - either by agreeing a 'section 198' tax election with the seller, or by either party seeking a determination from the Tax Chamber of the First-tier Tribunal.  For the majority of buyers a negotiated section 198 election is unlikely to be in their best interests and will probably result in a significant loss of tax relief.

 

From April 2014, the rules toughen so that even where the seller has not claimed any allowances, but theoretically could have done, then the buyer must get the seller to value the expenditure that qualifies for capital allowances and formally notify this to HM Revenue & Customs before the buyer may make a claim.  If this does not happen then neither the buyer, nor any future owner of the property, will ever be able to claim any capital allowances for the plant and machinery fixtures, resulting in a significant and permanent tax bill increase.

 

For more background read our articles in the Law Society's Property in Practice (June 2012) and The Tax Journal (September 2012).  Or contact Martin Wilson to discuss a training session (tel 0116 241 4148 or martin.wilson@cap-allow.com).

 

Tags for this article: capital allowances, fixtures, training, seminar, solicitors, conveyancing, Finance Act 2012

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