Commercial Property Tax Elections and Tribunal – Getting a Good Deal
Updated: Jul 5, 2020
If you want to get a good deal on capital allowances when you buy or sell a commercial property it is important to understand the full options available.
A capital allowances election is how a Buyer and Seller agree what tax relief is retained or transferred on the sale of a UK commercial property. They only happen when the Seller is a taxpayer and can be between either a taxpayer or non-taxpayer (e.g. charity or pension fund) Buyer.
If you sell or buy a commercial property that is the subject of a capital allowances claim don’t feel you are powerless to accept an unreasonable Capital Allowances Act (CAA) 2001 s198 election (or s199 when applicable) agreement.
The old advice for a Seller who claimed allowances was to get a valid capital allowances election in place to clearly determine your tax position. This general advice has not changed. When an asset is sold, a Seller who has claimed fixed plant and machinery allowances will normally be required to bring a disposal value into account that reflects the net proceeds of sale in accordance with CAA 2001 s196(1) and s562. A valid election not only protects your position but avoids the unnecessary expense of specialist valuation as parties can agree an alternative apportionment outside the normal rule.
The old advice for a Buyer was typically to do your research but resist signing an election that restricts you to an artificially low value. This is because Buyers could challenge unreasonably low disposal values by submitting an alternate claim valuation to HM Revenue & Customs for ultimate negotiation with the Valuation Office Agency. Following the introduction of CAA s187A in April 2012 this option is no longer available.
If a Buyer wishes to claim allowances on which a seller has claimed, it now needs a valid s198 election. From April 2014, it also needs the Seller to have actually claimed on everything they were entitled to as it can longer submit fresh claims for items previously missed. This is what the legislation refers to as the ‘mandatory pooling’ requirement.
It is clearly sensible for both parties in a sale to be much more open on their respective capital allowances positions and use the election rules available but, where the circumstances and tax at stake warrants, the legislation specifically allows either party (including a non-taxpaying Buyer) to refer to Tax Tribunal to determine an alternative apportionment.
If you wish to do so you will need to make sure the basis of claim is clearly understood (i.e. that the seller is required to bring a disposal value into account) and that what you expect to be a reasonable apportionment is supportable. HM Courts and Tribunal Service have confirmed that the Tribunal has now dealt with over 32 alternative apportionment so you are not alone.
For further details, please do not hesitate to contact us.