Instead claims for capital allowances must be made before the fixtures are eventually sold on. A consultation document (42-page / 170KB PDF issued earlier this year had proposed a one or two year time limit on the making of claims to "prevent claims many years after the property changed hands when it is difficult to check whether the allowances should be given".
The consultation response states that "although the Government proposes to amend the existing rules to require a business owner to pool the value of his expenditure on fixtures, if he wants to pass on an entitlement to claim to another person (because otherwise there would be no certainty and the system could be manipulated), this may be done at any time before a subsequent transfer."
The Government’s second main proposal was that, in order to qualify for capital allowances, sellers and purchasers of second-hand fixtures should record the figure they have agreed for the fixtures and notify this to HMRC within a similar timescale to the original “pooling” proposal, meaning within one or two years.
The response to the consultation states that the Government has decided that this proposal should be modified from a requirement for a separate record of agreement, to a requirement that the seller and purchaser should, within two years of the sale, adopt or invoke one of the two existing procedures to fix their agreement about the value of the fixtures.
This agreement is usually reached by entering into an election under section 198 or section 199 of the Capital Allowances Act 2011. If agreement cannot be reached the matter can be referred to the First Tier Tax Tribunal.
The response document states that the government "endorses the view expressed in the responses: that the section 198/199 CAA election agreement should become a standard provision of all sale and purchase agreements for a commercial property interest".
"Capital allowances advisers and property owners in fixture-heavy businesses such as the hospitality and care sectors must be heaving a sigh of relief that HMRC have significantly watered down the Budget 2011 capital allowances proposals on mandatory pooling, which would have reduced the ability of taxpayers to make historic capital allowances claims." said Jennie Newton, a tax expert at Pinsent Masons, the law firm behind Out-Law.com.
The response document states that, in the light of the responses to the consultation, further proposals have been abandoned. These include a proposal that would prevent a section 198 election being made at less than tax written down value, which has the effect of enabling a seller to continue to get the benefit of capital allowances after a sale of the property.
"The property industry will also be pleased that the government has abandoned the controversial suggestion that sellers should be prevented from making section 198 elections at £1 to continue to get the benefit of the capital allowances " said Newton.
The response to the consultation also announced that the Business Premises Renovation Allowance (BPRA) rules will be changed to allow a purchaser to claim BPRA allowances on the part of the price relating to fixtures, to the extent that fixtures expenditure has not already been relieved by BPRA.
BPRA is a relief designed to encourage the renovation of empty business property in disadvantaged areas of the UK. It provides 100% allowances for renovation expenditure on the structure and fixtures of such buildings. However, if a claimant sells on the renovated property within 7 years the allowances are clawed back. Under current rules the purchaser is not able to get the benefit of unused BPRA allowances.
A fixture is a piece of equipment which is physically attached to a building, such as a lift or a washbasin. Capital allowances enable businesses to obtain annual tax deductions as a percentage of the amount they spend on certain fixtures.
Capital allowances are currently given at a rate of 20% of the money spent on fixtures, or at the lower rate of 10% for longer life assets within a building such as lifts and air conditioning. However, the rates of capital allowances will reduce to 18% for normal plant and machinery expenditure and 8% for assets with a longer life, as a result of changes introduced by this year's Finance Act. The purchase price of a building will need to be divided up to work out how much was paid for the qualifying fixtures.
There is currently no time limit for making a claim for capital allowances on fixtures, as long as the fixture is still owned by and used in the business.