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Time limit proposed for capital allowance claims

Commercial property buyers could lose out on certain tax benefits if they don't claim them quickly, HM Revenue & Customs (HMRC) has announced.31 May 2011

HMRC is consulting on a proposal that there should be a time limit on when capital allowances can be claimed in respect of fixtures in a building.

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.

A time limit of one or two years after purchase will prevent claims many years after the property changed hands when it is difficult to check whether the allowances should be given, the consultation suggests.

"It is not clear to what extent current owners pursue previous owners for the necessary information, or simply assume that it is pointless to do so, with the consequence that this aspect of the law may effectively be being ignored," HMRC said in the consultation (42-page / 170KB PDF).

"Clearly a short period, such as one year from acquisition, would help ensure that a single agreed amount of the sale price represented both the seller's disposal value and the purchaser's acquisition cost in respect of the fixtures," it said.

Buyers and sellers should give HMRC agreed figures showing how much of the purchase price was paid for the fixtures, and should not be able to choose a value which is less than the amount of allowance the seller has not yet claimed, the consultation said.

The changes will apply to new and second hand fixtures purchased after the new rules come into force. Current owners of fixtures could also be given a one or two year time limit from the new rules coming into force in order to make claims.

"If these proposals become law much more care will need to be taken over the capital allowance position on property deals to ensure that proper agreed price apportionments are made, so that the buyer does not lose its chance to claim allowances. All too often on deals these issues are glossed over because, at the moment, the position can be sorted out later," said Catherine Robins, a tax expert at Pinsent Masons, the law firm behind OUT-LAW.COM.

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. 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.

The consultation does not indicate when any changes would come into force, but hopes that new laws will be produced in draft form "towards the end of the year".

Comments can be made on the proposals until 31 August 2011.

Expertise in Real Estate Tax

Property transactions present a large number of complex taxation issues whether those involved are property owners, developers, tenants, banks, investors or the public sector. Tax charges can significantly affect the return and, in some cases, can make a project commercially non-viable.

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