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Archive for April, 2014

CD-RIPPING “Now Legal” – does this represent a massive overhaul of existing IP law?

17/04/2014
The Hargreaves Report published in May 2011 made various recommendations regarding changes to Intellectual Property Law to bring it up to speed with modern technology. The changes have been largely b

The Hargreaves Report published in May 2011 made various recommendations regarding changes to Intellectual Property Law to bring it up to speed with modern technology. The changes have been largely backed by the government and the Intellectual Property Office (IPO) has recently announced one of the most ‘radical’ changes which will take effect from the 1 June 2014.

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CAPITAL ALLOWANCES POST APRIL 2014 – USE IT OR LOSE IT

09/04/2014 | Martin Buckeldee
Capital Allowances are a form of tax relief.  A Buyer of certain capital assets can claim allowances based on the cost of those assets, and deduct those allowances from their taxable profits.  This

Capital Allowances are a form of tax relief.  A Buyer of certain capital assets can claim allowances based on the cost of those assets, and deduct those allowances from their taxable profits.  This tax relief can be generated following capital expenditure (whether by the current or a previous owner) on items which form part of a commercial property.

These allowances have been available for a number of years but generally speaking they have been under used.  The extent of the allowances which can be claimed  is often therefore a surprise to property owners.

The Finance Act 2012 introduced some significant changes to the way in which the capital allowances regime works in the context of “second hand” commercial properties.  The changes which have come into effect since the beginning of April could result in the ill-advised Buyer losing its entitlement to make a claim.

Prior to April 2014 where a second hand commercial property was purchased and that property contained plant and machinery (including that which is part of the property such as central heating or air conditioning) capital allowances were automatically available to the Buyer even if the Seller had not in the past addressed the issue.  The amount available being dependent on the price for that equipment paid by the Buyer (or the value attributable to that equipment as agreed between the Seller and the Buyer).

Since the beginning of April however new rules mean that a Buyer of a second hand commercial property will only be entitled to claim allowances on second hand fixtures within the building if the fixtures have been properly identified by the previous owner and set down in their capital allowances computation.  The consequence of this new rule is that if the previous owner did not make a claim for capital allowances then the ability to claim capital allowances against those items of equipment will be lost for all future Buyers.  This is known as the “pooling requirement”.  A Seller can still retain the ability to claim capital allowances if pooling has not been undertaken by ensuring that the Seller and the Buyer jointly elect a nominal alternative apportionment in accordance with section 198 of the Capital Allowances Act 2001

If for example a property is sold by A Ltd to B Ltd for £2 million, as much as 25% of that purchase price could  be attributable to plant and machinery and equipment.  A Ltd may well have made capital allowance claims and so will be in a position to agree with B Ltd the value of the equipment and the future availability of any capital allowance claims.  If however A Ltd has never made any capital allowance claims then prior to exchange of contracts A Ltd and B Ltd will firstly need to investigate and agree which equipment at the property qualifies and secondly they will need to agree the value attributable to the equipment.  A Ltd will make a claim to the extent of the value attributed (and thus allocate the expenditure incurred in respect of the equipment to the relevant “pool”) and B Ltd will thus be in a position to make a claim in that and future years as appropriate.  If this process is not carried out then the availability of the capital allowances will be lost.

In the case of most commercial property transactions due diligence includes the raising of preliminary enquiries of the Sellers.  The standard set of enquiries which are used have for some time incorporated a series of enquiries which address the issue of capital allowances. They have recently been amended to reflect this new emphasis. The replies given have however tended in the past to be generalised and of little assistance, going forward proper attention to the answering and following up of these enquiries is likely to prove critical.

The message is a clear and simple one, if the issue of capital allowances is not addressed as part of the sale process of a second hand commercial property then the ability to take advantage of any unused allowances will be lost.

This bulletin should not be taken as definitive legal advice. Please contact Martin Buckeldee on 020 7955 1403 or martinb@rosenblatt-law.co.uk for further advice.

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