Commercial property transaction? Think of the pool before you jump in

The start of 2014-15 tax year heralded a significant change which is set to have an impact on commercial property transactions.

It’s always been the case that buildings will contain items classed as ‘fixtures’, on which it’s possible to claim capital allowances. Historically, however, owners of properties may not always have identified everything that can potentially be claimed. All in all, it didn’t matter too much. If you were buying, you’d employ a valuer to estimate the current replacement value of the fixtures and make a claim based on their report.

HMRC thought the system was open to abuse and a potential source of tax leakage, as it was possible that claims might be made for fixtures on which the owner had never paid tax as a disposal value. Under new rules, a ‘pool’ has to be established which contains all the items that can potentially be claimed.

As a purchaser of a property, you can only claim capital allowances for expenditure the seller has already pooled. And if you acquire a property where no pooling has taken place, no one will be able to claim a capital allowance. It will then become an ongoing issue.

Commercial property contracts will now include a clause that requires the seller to pool all relevant assets prior to the completion of the sale as standard. A buyer will then employ a specialist valuer to look for anything that may have been missed. It’s worth remembering that more items qualify for the list than ever before. Back in 2008, it was decided that capital allowances could be claimed on ‘integral’ fixtures, such as electrical, power and heating systems. Essentially, anything that is fixed within the building, and which can’t easily be removed, counts for these purposes.

A couple of points to bear in mind. The rules about pooling don’t apply if the seller has a specific tax exempt status, such as a charity, pension fund or local authority. And the new interpretation of integral features doesn’t apply retrospectively to items bought pre-2008, which are dealt with under a different procedure.

Whether you’re a buyer or a seller, it pays to be aware of the new rules. It’s also well worth having a discussion with your professional accountancy adviser about the best approach to the issue of allowances.