Capital allowances ― property transactions and fixtures

By Tolley in association with Martin Wilson, the Capital Allowances Partnership Limited
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The following Corporation Tax guidance note by Tolley in association with Martin Wilson, the Capital Allowances Partnership Limited provides comprehensive and up to date tax information covering:

  • Capital allowances ― property transactions and fixtures
  • Fixtures
  • Position for transactions effected on and after 1 April 2012
  • Section 198 claims ― drafting requirements
  • Other matters to consider

Fixtures

Buildings usually contain fixtures, ie items attached permanently in the building. Examples of fixtures include:

  • lifts and escalators
  • heating, lighting and electrical systems
  • alarm systems
  • sanitary appliances, and hot and cold water systems
  • telephone and data installations

However, the definition of fixtures is much wider than the large and expensive assets shown above, and can include, for example, individually small items such as signs, door furniture and carpets. Consequently, it is practically inconceivable that a building will not contain assets on which capital allowances could potentially be claimed.

When a property is sold, ownership of the fixtures under wider land law will generally pass to the purchaser by default. However, it is often not understood that the right to capital allowances on those fixtures also passes by default. Consequently, the purchaser is in the stronger position. Note, however, the additional requirements for transactions effected on and after 1 April 2012 (below).

In the absence of an election under CAA 2001, s 198 (see below), the default value of these items for tax purposes (the purchaser’s capital allowances cost and the seller’s disposal value) is a ‘just and reasonable’ apportionment of the total purchase price. However, the default value cannot exceed the amount on which the seller claimed capital allowances.

CAA 2001, ss 562, 185; CA26250, CA26400

It is a common misconception that tax written-down value is relevant. Where the seller has claimed, the maximum amount allowances available to the buyer are equal to seller’s original cost, not the written-down value.

General practice, endorsed by HMRC Valuation Office Agency and the Courts, is that the values of all elements of a property (eg land, structure and fixtures) rise or fall in the same proportion to

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