One of the major changes under the Finance Bill 2012 relates to the capital allowances available to the purchaser of a property.
Previously the section 198 election was optional it will now become mandatory.
Even if the seller has not claimed any capital allowances there will be a mandatory requirement for capital expenditure to be identified and pooled by the seller (that is, notified to HMRC). Broadly, this can be done up to two years after the sale of the property. This leads to the strange possibility that the buyer may have to ask the seller to pool the expenditure after the sale has been completed which would be achieved by the commissioning of a capital allowances specialist. There will obviously need to be a negotiation over who pays for the capital allowances claim in these circumstances and how any identified capital allowances will be allocated between the parties.
If the seller has not pooled the capital allowances qualifying expenditure within the required period then the right to claim capital allowances is lost not only by the new owner but by any subsequent potential purchaser. Furthermore, a S198 election agreement must be entered into. If either requirement is missed then any right to claim capital allowances on the property will be lost entirely to both the new owner and any future owner.
Where capital allowances claims are missed in this way it could actually reduce the potential value of the property in a buyer’s eyes so making a capital allowances claim is an imperative for owners of commercial property. Potentially conveyancing solicitors will need to take much more interest in capital allowances or risk being sued by their clients for not providing the correct advice at the time of sale / purchase.
This is now a critical consideration as part of the pre completion paperwork for a buyer of property to ensure that the seller has made the appropriate election.
Source: HMRC
