KEEBLES Capital Allowances


A care home owner is not permitted to make a deduction or


allowance for the depreciation of plant and machinery when calculating its taxable profit or loss. Instead, they are allowed certain capital allowances to reflect the depreciation.


The benefit for owners/occupiers of care homes is that, when expenditure is incurred on fixed plant (such as liſts, heating systems, air conditioning and sanitary fittings), an annual percentage can be claimed as a writing down allowance, resulting in the expenditure being claimed back over time.


Before you can claim capital allowances on expenditure, there are several conditions which must be met. The expenditure must be:


1. Capital; 2. On plant and machinery; 3. Wholly or partly for a qualifying activity such as trade;


4. The owner/ occupier incurring the expenditure must own the fixed plant outright.


The issue of capital allowances is important when buying and selling a care home because, if the seller has been claiming capital allowances for the fixtures and fittings, the seller and buyer must ascertain the amount of the sale proceeds which should be apportioned to the relevant plant and machinery.


We would recommend both parties discussing the issue at a very early stage in order to prevent negotiations slowing down at a later date. Both parties should involve their accountants in the process.


For a buyer to claim allowances aſter the purchase, it is recommended that the parties enter into an election (a ‘section 198 election’). This is a statement annexed to the contract for sale, in which the value of the plant and machinery is fixed.


It is common for an election to be at either ‘tax written down value’ or at £1 per pool of assets. On a practical level, this means that the figure reflects the value of the assets in their depreciated state. For the seller, this means that they will not suffer a ‘clawback’ of any allowances already claimed but that they will no longer be able to claim any further allowances as the assets will have been fixed at their true value.


- 26 -


ON THE CASE


Every issue, Yorkshire law firm Keebles LLP shares its legal insight on a variety of topics. Charlotte Harris, Partner and Commercial Property Expert at Keebles LLP, explains how capital allowances need to be considered when dealing with the sale or purchase of a care home.


For a buyer, it means that they will be unable to claim any allowances moving forward as the fixed figure would already be almost entirely depreciated, meaning that the seller would be at liberty to continue to obtain tax relief on the written down value of the assets.


As a buyer, it is important that your solicitor raises enquiries about the capital allowances position before contracts are exchanged. A buyer will only be in a position to claim the tax relief moving forward, if the seller has ‘pooled’ its expenditure on the plant and machinery in a chargeable period when it owned the property. This pooling requirement acts alongside the election requirement referred to above.


"Failing to preserve the value of the allowances could result in the value of the property being impacted."


Particular attention needs to be paid if a seller has not been claiming allowances, meaning that any expenditure has not been pooled. The buyer will need to ensure that the expenditure is pooled prior to completion of the transaction. This can be done by their solicitor providing for such matters in the contract of sale.


It is important to instruct a solicitor to act on your behalf who will raise enquiries to ascertain the seller’s capital allowances position as early as possible into the transaction. They can then liaise with the buyer’s accountant to ensure that the necessary steps are taken in order to preserve the buyer’s ability to claim allowances aſter completion of the acquisition.


If this is not done, valuable allowances can be lost by virtue of being unclaimed by both parties. Failing to preserve the value of the allowances could result in the value of the property being impacted.


For assistance in anything discussed above, contact Charlotte on charlotte.harris@keebles.com or 0114 252 1464.


www.keebles.com www.tomorrowscare.co.uk


"


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54