Finance


acceptable to HMRC, assuming you have relevant skillset outlined above. The process is then the interrogation of all of the property expenditure in detail so that you can analyse the expenditure into the claimable categories in an acceptable manner so they can become part of the tax calculations for the company’s relevant tax year.


Capital allowances in property purchases Construction is not the only property expenditure where you can benefit from capital allowances. They can also be available within property purchases. Due diligence before purchase is required to ensure that purchasers are aware of the potential allowances, and values can be optimised as a part of the transaction. There are specific solicitors’ enquiries that deal with capital allowances, but these are often incorrectly answered or ignored by sellers, or not correctly interpreted by solicitors. Another consideration in a transaction is whether you are looking at an asset purchase or a corporate purchase. For a corporate purchase, you will just step into the shoes of the seller for capital allowances purposes and there will only be additional capital allowances available if the seller has not made a claim when they could have. Within an asset purchase, it is possible for there to be no capital allowances available, a negotiated value between the seller and the buyer, or an unrestricted value available to the buyer. There are a number of specific circumstances that determine what you will be able to secure, including who has owned the building in the past, what type of owner the seller is (taxpayer or non-taxpayer), whether they or any past owner has made a claim for allowances, how long they have owned it, or whether they have undertaken any works during their ownership. Unrestricted claims can be available if


you are purchasing the property from a non-taxpaying entity such as a not for profit organisation, a charity, a local authority or government organisation, or a pension fund. They can also be available if you are buying from an owner who has owned the building before April 2008, assuming they have not undertaken significant works to it to replace the potentially claimable items. Where a claim value is possible, the


value can range from three per cent of the purchase price to 30 per cent in unrestricted cases involving fully equipped care homes. Undertaking a capital allowances claim


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The maximisation of the allowances within the most beneficial categories will be key to the best tax saving outcome


on the purchase of a property involves being able to assess the land value within the purchase price, the detailed reconstruction costs of the building, the reconstruction costs of the eligible items within the building, and the formula HMRC use in apportioning the claimable items within the building to the overall purchase price paid. In a situation where the seller has not made a claim and they should have, in order for the buyer to obtain allowances, it may be necessary for the purchaser’s capital allowances consultant to make a claim on behalf of the seller and enter into an agreement to pass the claim value to the purchaser within the sale and purchase contract.


Dealing with HMRC


When the company submits its tax return for the relevant period, HMRC will have a year from the due date to enquire into any aspect, including the tax allowances claims that form part of it. Generally, they should be provided with the details of any tax allowances claim so that they can review them and consider whether they want to make an enquiry. Experience over the last fifteen years


is that we have not come across much in the way of enquiries into the many claims submitted across this period. This could relate to HMRC priorities and manpower, as well as their view of the claimant or their advisors. However, over the years of practice before this, there were a healthy number of enquiries which could often be resolved through provision of more information. If HMRC were still not satisfied, the


process would involve engagement with the HMRC representative and potentially the Valuation Office to resolve issues of eligibility and value. HMRC would normally consider eligibility using the legislation, case law, and practice, and the Valuation Office would consider the values claimed against each item within the claimable categories. Where the claims have been diligently


prepared, it was often possible to maintain the full value in negotiation with HMRC and


their agents, but there was always scope to negotiate a reasonable settlement value.


Specialist advice The use of specialist consultants can be very beneficial and cost effective. An experienced advisor will have all of the skill and experience to optimise the values and agree them with HMRC, should this be necessary. They will also provide an indication of the tax benefits from either construction expenditure or property purchases at precontract stage based on initial information, so they can be weighed against the costs before proceeding. They can go some way to de-mystifying some of the legislation, tax law, and practice around the area, which, I hope, has been the case through this article.


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Andy White BSc FRICS


Andy has been a capital allowances consultant for over 30 years. He has experience with all types of property, whether related to acquisitions, development, refurbishment, or extension. During the earlier years, when HMRC were more active in enquiring into capital allowances valuations, he gained valuable experience in engaging with them and agreeing favourable values for clients. He has also experienced all of the changes to the regime in the last 30 years, including the more recent moves by the government to significantly increase the value of the allowances and incentivise investment. Andy has also seen the care sector change to the position where homes are more bespoke, luxurious, and comfortable, and contain significantly more facilities and services relating to the entertainment, comfort, and care of their occupants. This all helps to increase the tax savings from any expenditure.


www.thecarehomeenvironment.com May 2024


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