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Capital Allowances Update for Surveyors

Taxing Times: Capital Allowances Update

This article appeared in the Royal Institution of Chartered Surveyors' Commercial Property Journal, May-June 2012 and is reproduced with kind permission.


A basic rule of income and corporation tax is that the ‘capital’ cost of building or buying business premises, or investment property, is not tax-deductible. Instead, capital allowances are available. These give owner-occupiers and property investors tax relief for expenditure on ‘plant’ and ‘machinery’ in new or second-hand commercial property. In most cases, residential property, such as houses of multiple occupation, does not qualify for capital allowances. Machinery takes its normal meaning. However, plant is more difficult to identify. In essence it is business apparatus; that is, an asset that is put to a particular business use in a particular business context. Typical plant and machinery assets in buildings include fixtures such as electrical and heating systems, and chattels such as furniture and furnishings.


For second-hand property transactions, by default the claim is calculated using a ‘just and reasonable apportionment’ of the purchase price (potentially restricted by former owners’ claims). And missed claims may be remedied many years later. Therefore, capital allowances have generally been ignored when valuing property. However, from April (in the Finance Act 2012) the UK government intends changing the rules so that a failure to deal with capital allowances promptly will lead to the buyer irrevocably losing all of the tax relief that it would otherwise be entitled to. Every property is unique, but increased tax bills could typically equal 5-10% of the purchase price (and as much as 23%). Furthermore, if the property is later sold again, no future owner of the property will ever be able to claim any capital allowances on those fixtures. The likelihood is that this may adversely affect the price of some properties. So, a business acquiring a £1 million commercial property, but failing to deal with capital allowances properly, could end up paying additional tax of between £50,000 and £100,000 (and as much as £230,000) and suffer damage to the property’s future sale price.

New rules

From April 2012 a new obstacle is being introduced before a purchaser of second-hand fixtures can claim capital allowances. The buyer will have to prove that this requirement is met. Where the seller has claimed capital allowances, in almost all cases within two years of the transaction the seller and buyer must agree a formal tax election to agree the capital allowances value of plant fixtures, or refer the matter to a tax tribunal for resolution. If this is not done, the buyer, and any future owner, will never be able to claim allowances on those fixtures.


The underlying legal position is that the allowances should usually transfer by default from the seller to the buyer. But, given that the seller’s and buyer’s interests are directly opposed, the allowances are likely to become a commercial matter and many sellers will be tempted to press for a low election amount (in an effort to keep most, or all, of the capital allowances despite selling the assets). Furthermore, because under the new rules either party can unilaterally refer the matter to a tribunal, each can try to bully the other to back down or be forced to incur the trouble and expense of facing a tribunal. This may well bamboozle or frighten smaller, poorly resourced and less well advised property buyers. However, by instructing a capital allowances specialist it should be possible to head off ‘hardball’ tactics, or confidently and cost effectively present the matter to a tribunal if necessary.


HM Revenue & Customs has stated that it expects fixtures capital allowances to become a standard aspect of the property sale process. Ideally this will need to be dealt with during the transaction, or the outcome will be much more uncertain, difficult and costly to resolve. In practice undoubtedly it will often become the responsibility of the conveyancing adviser. Unfortunately, not being tax specialists, many (particularly in smaller firms) may have limited knowledge of capital allowances and might not even be aware yet of this change to the detailed tax rules. However, if the new requirement is missed then the result will be costly for the buyer.

Action points

From April, surveyors advising buyers should take the lead in dealing with this matter and, where appropriate, recommend a specialist capital allowances adviser is retained. Whether a consensual election, or contested tribunal determination is chosen, a buyer would be well advised to commission specialist capital allowances support and a valuation to use as the basis of negotiations regarding the election, or for use at the tribunal. The earlier this is dealt with, the better. Sound advice should pay for itself many times over and doing nothing is simply not an option.

Further information

Responses to the UK government’s consultation document about capital allowances for fixtures can be viewed at


The Finance Bill 2012 draft clauses and explanatory notes can be viewed at



View and save Taxing Times: Capital Allowances Update as a PDF file.

Tags for this article: capital allowances, plant, machinery, fixtures, Finance Act 2012, surveyors

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