+44 (0) 20 7329 1300

Interview: A Little Capital Allowances Knowledge Can Be Dangerous

e have come across a number of situations where non-specialist solicitors, accountants and tax advisers have not recognised that a little knowledge can be a dangerous thing. This interview with former Valuation Office Agency (VOA) specialist Michael Edwards highlights the importance of considering Capital Allowances early in Commercial Property transactions.

Michael joined Lovell Consulting after 15 years within the Valuation Office providing capital allowances valuation and policy advice as internal expert to HMRC. Michael studied quantity surveying at Nottingham Trent University and is a chartered quantity surveyor. Mike has a wealth of experience reviewing capital allowances analysis. Mike previously worked with Davis Langdon as a quantity surveyor and has 40 years experience as a surveyor.

Is it possible to claim Capital Allowances on an existing, second hand commercial building?

M.E.: Entitlement to claim Capital Allowances can arise on the purchase of existing buildings. This entitlement is affected by a number of factors the main ones being when the property was purchased and from whom it was purchased.

One matter is that often overlooked is to check if there is an entitlement to claim or if there have been previous claims. This can be a lengthy and involved process and is often not carried out fully.

Another issue often overlooked on claims based on the purchase of a building is the matter of any Landlord/Tenant ownership issues. It is very easy to assume that all buildings will follow the normal Landlord/Tenant ownership split for the type of Property but from our experience this is often not the case and this matter should be researched in order to respond to any HMRC enquiry.

In your experience, what common mistakes are made when making a claim for Capital Allowances on purchased commercial buildings?

M.E.: We are aware of claims based on the Purchase Price of a building being submitted as a simple percentage of the purchase price. The percentage is derived by reviewing various websites and in order to get the claim accepted by HMRC a percentage at the bottom of the identified range is used. As a consequence these types of claims are generally significantly under claimed.

Claims have also been submitted on the basis of establishing a land value and a build cost and then by saying that the difference between the sum of these two figures and the price paid is the value of the Plant and Machinery. This method will not be accepted by HMRC as it does not use the accepted formula method which apportions the value of the various components against the price paid. Claims prepared using the apportionment formula are less likely to be challenged by HMRC.

An important part of the apportionment formula is the land value. This again is an area that is often not adequately researched. Where possible comparable transactions should form the basis of the land valuation but often a residual calculation is required.

The date of the transaction will have a bearing on any entitlement to claim Capital Allowances. What I have mentioned refers to any property purchase that occurred before April 2012.

What recent changes must be considered for transactions after April 2012?

M.E.: For purchases between April 2012 and April 2014 there were transition rules, and for purchases after April 2014 a more restrictive regime is in place.

For purchases after April 2014 it is still worth checking prior ownership and claims history and there can still be an entitlement on tax status of previous owners and date of purchase by the vendor

It is important that proper advice is taken when a property transaction is being considered.

A recent example we had was when an Accountant rang the office and said one of his clients was selling a hotel for £300,000 and the buyer had requested that they apportion £70,000 to Integral Features and would there be any problems with this.

There are a number of problems with this example?

  1. The Vendor would have to pool the allowances in their tax return and respond to HMRC if they had any queries – so may want to claim a fee from the buyer and have some certainty over the value of allowances.

 

  1. £70,000 is very high for additional integral features.

 

  1. The Vendor had bought the property for £100,000 so the integral features should be an apportionment of their purchase price not the buyers.

 

  1. The Vendor actually purchased the property in 2000 and had not undertaken any refurbishment works so could not claim for Integral Features as they only came into existence from April 2008. Therefore there was no need for the allowances to be agreed in the Sale & Purchase Contract as the Buyer could make an unrestricted claim for the additional Integral Features.

 

For claims based on actual expenditure incurred on building or refurbishing buildings see other website articles.

Back to News

OTHER NEWS

kirsty 1

MBL Webinar – Capital Allowances in Hospitality

shutterstock_1032143467

Lovell Consulting Commentary on November 2018 Budget: Capital Allowances Changes

Halloween

Capital Allowances Prevent Nightmare Tax Levels

Lovell Coffee Seminar November 2018

New Capital Allowances CPD Seminar Date

shutterstock_346345310

Capital Allowances Plant and Machinery in a Civil Engineering Context

Ho Ho

Lovell Consulting Capital Allowances Student Prize Winner 2018

The Lazarus Impact – Making Very Late Capital Allowances Claims

OTS – Report on Proposed Capital Allowances Simplification

Capital Allowances within Commercial Sale and Purchase Contracts

john

OTS Review on Capital Allowances and Accounts Depreciation

EGA_220717_301_REV

20 Years of Capital Allowances

20170719_133055

Lovell Consulting Capital Allowances Student Prize Winner 2017

Pension Funds and Capital Allowances Interactions

lexis

Lexis Nexis Webinar – Capital Allowances in 2017

Capital Allowances and Demountable Partitions; To Move or Not to Move?

Employees Claiming Capital Allowances: Caravan Case Demonstrates Hurdles!

Capital Allowances, Corporation Tax Loss Relief & Interest Deductions – Act Now

Corporation Tax Loss Relief & Interest Deductions: Capital Allowances

Capital Allowances, Trustees and Tax Havens

MBL Seminar Dates Announced (Capital Allowances in Retail, Hospitality & Offices)

new-picture-56

2016 Lovell Consulting Capital Allowances Art Prize Voting Begins

Capital Allowances in the Retail Sector

Free Cash, Tax Savings & Capital Allowances for SMEs Going Green

Student Accommodation & Capital Allowances

blake-h-portrait

Lovell Consulting Capital Allowances Student Prize Winner 2016

Capital Allowances within Offices

MBL Webinar

MBL Webinar – Capital Allowances for Property Surveyors

Capital Allowances & Data Centres

Tax Journal Interview: One minute with…John Lovell, Capital Allowances Specialist

Claiming Capital Allowances and / or Repairs

Commercial Property Standard Enquiries: Capital Allowances

New Picture (54)

LexisNexis Webinar – Tax for General Practice & Capital Allowances

Artful Plant: When Capital Allowances may be Claimed on a Painting

New Picture (44)

LexisNexis Webinar – Commercial Property Law & Capital Allowances

Thumbs_up_bluefilter

New Capital Allowances Team Appointment – Glenn Ramos

New Picture (48)

MBL Webinar for Property Lawyers and Tax Advisers (Capital Allowances)

Fundamental Changes to Interest Deductions & Impact for Capital Allowances

Capital Allowances within Childcare Facilities & Schools

John Lovell Comments: 2016 Budget – Impact on Capital Allowances: Commercial Property

Capital Allowances Team Announcements

Better Call Lovell for Capital Allowances

0928aa_ee33b990a61e441d83d6b257a590d366

Lovell Consulting Capital Allowances 2015 Art Prize

Lexis

LexisNexis Capital Allowances Webinar with John Lovell & Ronak Shah

Plant in Garden Centres: Claiming the Right Kind for Capital Allowances

Can an Accountant Claim the Capital Allowances without Specialist Support ?

John Lovell Capital Allowances talk at Chartered Institute of Taxation Conference

Enterprise Zones & Capital Allowances

Capital Allowances & Landlord Contributions to Tenant Fitting Out Works

10 Key Qualities To Look For In A Capital Allowances Advisor

Capital Allowances within Private Member Clubs

Effective Dealing with HMRC for Capital Allowances

Taxation Feedback Article

Taxation Feedback: Capital Allowances

Capital Allowances within Restaurants

Capital Allowances within Nursing Homes

Little Book

Little Book of Big Capital Allowances Savings

Real Estate Investment Trusts: Get The REIT Advice on Capital Allowances

Wind Turbines and Capital Allowances

Contaminated Land – The Big Clean Up for Capital Allowances

New Picture (20)

Capital Allowances & Furnished Holiday Lets

Capital Allowances Hidden Gems within Hotels

Helpful Tips for Claiming Capital Allowances in Tax Returns

Why Do I Need A Capital Allowances Specialist?

Land Remediation Relief & Capital Allowances Q&A

Inspired Capital Allowances Savings_Page_1

Inspired Capital Allowances Savings

Private Rented Sector (PRS) & Capital Allowances: Key Planning Points

Drafting For Purchase Contracts And CPSE Capital Allowances Responses

Lovell Consulting Capital Allowances Student Prize Winner 2015

Summer Budget 2015: Property Tax Updates & Impact for Capital Allowances

The Benefits of Claiming Annual Investment Allowances

LN

Lawyers Should Seek Specialist Capital Allowances Advice

Lovell_Consulting_Groups22-1500w

The New Environment For Capital Allowances

Capital Allowances – Demolition Costs

Capital Allowances – Asbestos Removal

Capital Allowances Case Summary: Bowerswood House Retirement Home

Property Tax Case Summary: Terrace Hill (Berkeley) Ltd: Impact for Capital Allowances

Business Premises Renovation Allowance (BPRA) Case Summary: Senex Investments

Construction Expenditure image

Capital Allowances Savings for Construction Expenditure

Recent Capital Allowances Case Study

Capital Allowances Case Summary – Rogate Services

Lovell Consulting Capital Allowances Student Prize Winner

Capital Allowances Case Summary – LLPs and AIA

Kirsty and Mike 2

New Capital Allowances Team Members

See Saw 2-10 (2)

Lovell Consulting Capital Allowances 2014 Art Prize

EGA_030514_301.indd

Recent Lovell Consulting Press Coverage: Capital Allowances

Lovell_Consulting_Groups05

April 2014 Capital Allowances Fixtures Rules

The Budget of 19 March 2014 Announced a Number of Capital Allowances Changes

Lovell_Consulting_Groups22-1500w

Capital Allowances Case Update – The Granleys

Holiday Lets 2

Capital Allowances on Furnished Holiday Lets

Capital Allowances Case Update – Wetherspoon

The Budget of 23 March 2012 Announced a Number of Capital Allowances Changes