Purchase of Buildings

Where a property is purchased and no previous capital allowances claims have been made, capital allowances are determined by separating the cost of the Plant and Machinery from the land and the buildings and then apportioning the Plant and Machinery cost from the purchase price using valuation techniques approved by HM Revenue and Customs.

When applied to purchased buildings, which includes the cost of land (on which allowances are not available) the qualifying Plant and Machinery could account for as much as 30% of the purchase price of an air conditioned office building, 20% of a basic office building and up to 10% of an industrial building.

Where a property has been purchased and the seller or a previous owner has claimed capital allowances, the buyer’s entitlement to claim may be restricted.

It is common for a seller who has claimed capital allowances to safeguard his tax position by bringing a disposal value, for the qualifying Plant and Machinery on which he has claimed capital allowances, into account by way of an Election under Section 198 of the Capital Allowances Act 2001. This disposal value must not exceed the original cost and providing it conforms to the prescribed format and timeframe, will be binding on all parties, and will prevent the seller from suffering a clawback (balancing charge).

It is not uncommon for this disposal value to be in the sum of £1.

When purchasing a building, the buyer will generally be expected to jointly enter into the Section 198 Election with the seller. Section 201 CAA 2001 requires the seller to provide sufficient information for all parties to identify those assets claimed and included within the Election. We would recommend that the seller is requested to provide a schedule listing those assets claimed.

Where the seller’s disposal value is anything other than £1, a schedule of claimed assets and their respective disposal values should be provided. With effect from April 2008, the onus is on the buyer to ensure that assets are allocated into their correct pools, and therefore it is not acceptable to agree to an Election which simply relates to ‘all Plant and Machinery’.

The provision of a detailed schedule of claimed assets, will enable the buyer to establish how comprehensive the seller’s claim was, and could therefore enable a buyer to claim capital allowances on assets not previously included within a seller’s claim.

Where a comprehensive capital allowances claim has been made by the seller or previous owner relating to expenditure incurred prior to April 2008, the buyer may be entitled to claim for certain additional assets that previously did not qualify for capital allowances, most commonly including lighting, general power and cold water installations.

As part of the buying and claim process, PJB will carry out all appropriate research to ascertain the entitlement to claim and to advise on the potential levels of allowances that may be available.