Under the previous draft of the legislation, if a seller of fixtures had claimed allowances then the allowances would always be lost unless within two years:
- both the seller and buyer made a section 198 (or 199) election to fix the disposal value of the fixtures; or
- either of the parties applied to the Tax Tribunal to decide that disposal value.
How have these rules been relaxed?
This restrictive approach would have prejudiced charities and other non-tax payers which, having scant knowledge or awareness of the capital allowances regime, might have omitted to follow either of the above procedures when buying real estate. Although they could not themselves claim them, the loss of the allowances to any future tax paying owners would potentially prejudice the value of the property.
HMRC has, therefore, agreed that a buyer from a non-tax payer who has not followed either procedure in respect of its own (post March 2012) acquisition of fixtures may still be entitled to claim allowances if that buyer obtains:
- a statement by the non-tax payer that over two years have elapsed since the non-tax payer acquired the fixtures (so precluding any election or application to the Tribunal in relation to that sale); and
- a statement made by the previous owner who sold to the non-tax payer of the disposal value that it brought into account.
So, if A (a tax payer who has claimed allowances) sells fixtures to B (say, a charity or tax exempt pension fund) and 3 years later B sells to C (another tax payer), C may still be able to claim allowances on the fixtures even though there is no election or tribunal decision in relation to the sale from A to B.
While this change is welcome, the practical benefits may be limited given the potential difficulties in tracing ownership and securing the co-operation of the prior owner, who would have no commercial incentive to disclose the disposal value of the fixtures brought into account by him.
In any event, well advised non-tax payers should not need to rely on this relaxation. The key, as before, is for any buyer to ensure that the seller’s position in relation to capital allowances is properly disclosed and that appropriate warranties (e.g. as to entitlement to allowances) and undertakings (e.g. as to the making of any section 198 election) are sought.