Significant changes to the capital allowances tax legislation ...

Changes included in the 2012 Finance Bill threaten to restrict the availability of plant and machinery allowances following the acquisition or disposal of property.

Significant changes to the capital allowances tax legislation surrounding property transactions apply from April 2012.?

New stringent regulations around tax elections? means that not fully considering capital allowances at the time of a property transaction could be very costly to taxpayers at a later date.

Poor housekeeping may significantly reduce or eliminate the tax value of fixtures in a property and thus reduce the overall value of the property on resale.

There are still opportunities to identify additional qualifying expenditure in recent and planned second hand property acquisitions.

The changes

The draft legislation included in Finance Bill 2012, has brought changes to the availability of plant and machinery allowances in property transactions. In property transactions occurring after 1 or 6 April a purchaser will only be eligible to claim capital allowances on fixtures within the property if the seller has brought the expenditure on the qualifying fixtures into a pool (subject to transitional rules). Additionally, for a claim by the purchaser to be valid, both parties will be required to make a tax election to fix the transfer value of the fixtures (or refer the matter to a First Tier Tribunal).

It may be the case that capital allowances have not been claimed in the past on fixtures within a property (e.g. if a taxpayer was loss making); transitional rules will apply in such circumstances.

We therefore recommend that purchasers undertake robust due diligence to establish the full claim history and explore the potential for new opportunities to claim where the fact pattern is favourable.

The opportunities

Now is the perfect opportunity to identify additional qualifying capital assets on recent or planned second hand property acquisitions. Fixtures that may not previously have qualified for capital allowances for the seller may now qualify for tax relief.

A review of recent property acquisitions may also reveal potential for claims in respect of expenditure by the seller not forming part of any tax election, for example, recent unclaimed refurbishment expenditure or capital contributions to tenants? fit outs.

For more information please contact: Lynsey Fothergill, Lynsey.fothergill@uk.pwc.com? or Laura Peacock, Laura.peacock@uk.pwc.com.

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