Finance Act 2012 will add new conditions which need to be satisfied for a purchaser of fixtures to be able to claim capital allowances on them. The measures will apply to expenditure incurred on or after 1 April 2012 (in the case of corporation tax payers) or 6 April 2012 (in the case of income tax payers, e.g. non-UK resident corporate investors as well as individuals)).
The Government first proposed amending the rules in May 2011. Since then it has been consulting extensively and the draft legislation published differs substantially from what was originally proposed.
The stated purpose of the proposals was to:
- ensure that allowances are not claimed on more than the original expenditure incurred on the fixtures; and
- to prevent late claims by any subsequent owner giving rise to double allowances by virtue of being more than the disposal value brought into account by any previous owner.
The Government now intends to achieve this as follows.
With effect from April 2012, any purchaser of fixtures on which the seller has claimed allowances will only be entitled to claim allowances on his acquisition expenditure on the fixtures (corresponding to the seller's disposal value) if within two years of the sale:
- the parties have entered into an election (in accordance with section 198 or 199 CAA) to fix the disposal value of the fixtures (unlike the original proposals, £1 elections will still be possible);
- one of the parties has applied to the Tax Tribunal to determine the disposal value of the fixtures; or
- (in a limited range of cases, e.g. when the seller has permanently ceased his business activity) the seller has made a written statement of the disposal value of his fixtures.
The purchaser will also have to produce a copy of the election, Tribunal decision or statement to HMRC on request.
With effect from April 2014, a purchaser will only be able to claim allowances on his fixtures expenditure if the seller (if entitled to claim allowances) has allocated his expenditure to a pool before the sale (other than in the limited circumstances where "first year allowances" are claimed on the fixtures).
As currently drafted the measures will not change the conceptual basis on which allowances may be claimed - rather it codifies in statutory form the form of evidence which is needed for a purchaser to make a claim.
The measures may impact on the due diligence which a purchaser needs to undertake and may entail a purchaser of fixtures seeking warranties/representations in relation to the seller's capital allowances position. In turn, therefore, the measure may impact on the seller's internal tax compliance, administration and procedures.
The draft legislation may be revised, although we expect the key features (as described above) to remain unchanged. We are expecting guidance from HMRC on the legislation later this year.