Capital allowances are available for not only construction projects, but also purchasing properties.
The capital allowances fixtures legislation allows for apportioning part of the purchase price of a property to the plant and machinery within that building.
Depending on the type of property and claims made by previous owners, the value of the capital allowances can be as much as 40 per cent of the property price. For individuals paying 45 per cent tax, this can be a huge saving, and even at the 19 per cent rate for corporates, this is a large value to be ignored.
A tax election under section 198 of the CAA 2001 is used to state the quantum of allowances that is to be passed from the buyer to the seller.
The change in fixtures legislation from April 2014 means capital allowances must now be considered well before the sale and purchase contract is agreed.
The 2014 fixtures rules advise that if the seller is chargeable to tax and could have claimed capital allowances, the allowances must be pooled and passed on via a section 198 tax election in order for the purchaser to benefit.
If allowances are not considered, they are lost not only for the buyer of the property, but also for all future buyers.
If a s198 election is made, this will impact the seller’s disposal value, and as such it may impact negotiations as to the price for the property itself.
It is also important to note that it is only possible for a valid s198 election to be made if the seller has actually claimed capital allowances during their ownership.