Capital Allowances: Why Advising Clients to seek specialist help should be part of lawyers' DNA

Capital Allowances: Why Advising Clients to seek specialist help should be part of lawyers' DNA

John Lovell of Lovell Consulting , interviewed by Melissa Moore of LexisPSL Property, reflects on how changes to the Finance Act in April 2014 have affected real estate transactions.

Why are capital allowances important to property clients and their lawyers?

  • Businesses are overlooking millions of pounds worth of tax allowances. Commercial property owners may be failing to claim due to embedded plant fixtures not being separately valued.
  • Until a survey of the property is carried out by a capital allowances specialist qualifying items will remain unclaimed.
  • Changes to the Finance Act from April 2014 now mean that these tax allowances could be permanently lost to a new buyer and all future owners.
  • April 2014 saw the introduction of the new “pooling requirement”.
  • For transactions after this date where the seller could have claimed allowances: (i) the buyer is required to fix the value of allowances to be passed on from the seller; and (ii) the seller is required to pool the allowances in their tax return. If these two requirements are not met within 2 years of the transaction’s completion date the buyer and all subsequent owners forfeit their entitlement to capital allowances forever.
  • Overlooking these new legislative requirements risks not just lost tax savings but also a loss of value to pass on when the property is sold.  Capital allowances are often an effective carrot in marketing a property.
  • As a result, property lawyers overlooking capital allowances face higher risks of PII claims.

Take for example a non-resident property investment company purchasing a property for £20m with potential capital allowances of £4m made up as follows:

 Total allowancesWritten down allowance (WDA)Notes
Integral features2,500,0008%Depreciate at 8% on reducing balance
Pooled plant1,500,00018%Depreciate at 18% on reducing balance
Total allowances4,000,000  
    

Using the capital allowances could nearly halve the tax bill in year 1 leading to a much better yield. If the Annual Investment Allowance has

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About the author:

Melissa Moore is a dual qualified in England and Wales and South African lawyer and has 14 years’ experience in property practice in England. She has worked in local government and been a partner at a regional law firm and most recently an associate director at Berwin Leighton Paisner which she joined in 2005. Melissa has wide experience in all areas of property law and specializes in commercial real estate development. She has experience in a number of sectors including hotel, leisure, offices, investment, industrial, motorway service stations and funding. She has worked on large scale strategic developments and government funding initiatives, town centre regeneration schemes and private mixed use developments both for public sector and private developers and investment funds. In 2013 she was ranked by Legal 500 as recommended for local government work.