Fixtures Consultation - HMRC Seeks to Close the Door on Historic Capital Allowances Claims.
28th June 2011
Hidden amongst a raft of tax consultations published by the Revenue within the last 6 months, is the current attempt to modify the already hugely complicated capital allowances legislation.
The Government is proposing to require businesses to pool their expenditure on fixtures within a ‘short period’ of acquiring second hand property, thereby removing a taxpayer’s right to claim for allowances whenever they wish, as long as the property is still held and used. The Consultation sets out to canvass opinion on the appropriate length of time that taxpayers are allowed to pool their expenditure.
HMRC is concerned that many claims for allowances on long held commercial property are not strictly limited to the original cost of the asset due to the difficulty taxpayer’s have in accessing historic claims for allowances on the property – whether by desire or design. This means that claims are sometimes made on properties based on a ‘just and reasonable’ apportionment of the taxpayers purchase price without the restriction to the prior owners claim for allowances.
To prevent the resulting perceived ‘loss’ to the Exchequer, HMRC propose to introduce a short time limit for bringing the acquisition expenditure into the capital allowances pool, and the current time limit proposed is between 1 and 2 years. HMRC believe this would give buyers enough time to get their affairs in order and should mean that sellers are still contactable and information still available on which to base buyers claims.
In recognition that many taxpayers have properties held for some time on their balance sheets on which no claim has been made, a period of up to 2 years from the introduction of these new rules is proposed for these properties to be assessed and claims made.
Allied with this, there is also a move to require the parties to a commercial property transaction to jointly agree the sale price attributable to the fixtures and that this should be formally notified by both the buyer and seller to HMRC. The current thinking is to set this as a ‘market value’ figure rather than anything between the original claim value and £1. Once again the reasoning behind this is to ensure that the buyer is properly restricted to the seller’s disposal value, where there is one, and that both parties use the correct agreed figures within their computations. Furthermore, HMRC perceive that this will remove the anomaly of the tax relief relating to a property remaining with the taxpayer that no longer owns the property.
Viewpoint
The introduction of mandatory pooling is a logical progression of the fixtures rules for future transactions and is probably a sensible protection for HMRC. There is no doubt that the ‘older’ the property, the harder it is to establish its tax history. That said it may provide a further barrier to taxpayers in making claims, and there are already many who are not aware that substantial claims may be made on currently owned properties.
It confirms the position that it is the taxpayer’s responsibility to ensure that claims are correctly prepared and restricted where necessary; however it also allows HMRC to avoid taking responsibility for cleaning up its administration and record keeping act, as they certainly should hold records of any disposal values entered by sellers, however historic the transaction.
Similarly requiring an agreement on the seller’s disposal value during transactions is an extension on the already available s198 election to fix the disposal value, however dictating the actual value of the assets is perhaps taking one step too far. There will still be substantial scope for planning in this respect and may mean that taxpayers, accountants and lawyers are forced to better recognise the value of the capital allowances within the transaction.
Action Required – There is a very limited window of opportunity now for all current owners of property to take a seriously hard look at their past claims to make sure all available claims have been made.
We will be responding to the consultation in due course, however, if anyone has any opinions or views as to how these proposals may work or any improvement suggestions, please do get in touch with us.
Details of the consultation can be accessed here.