Certain fixtures in buildings are treated in a special way for the purposes of claiming capital allowances. A fixture is an asset which is installed in a building so that it becomes part of that building or land in law.
Special legislation for fixtures was introduced in 1985 and, broadly, it lets allowances go to a person who incurs expenditure on the provision of a fixture, either on installation or by acquiring an interest in the building or land to which the fixture is attached, provided that allowances do not go to more than one person at the same time. Similar rules apply where a lessee pays a premium that is capital expenditure for a lease of land that includes a fixture.
HMRC felt that the rules were being abused. Sometimes this was due to clever planning and sometimes due to HMRC’s poor systems. Consequently, the law was changed in two stages.
The new rules now apply where:
• a current owner incurs capital expenditure on acquiring a property containing fixtures from another person for the purposes of a business activity (‘new expenditure’)
• that other person, or a previous owner, is treated as having been the owner of the fixtures at an earlier time as a result of them incurring other expenditure (historic expenditure) for the purposes of a business activity and
• that other person, or a previous owner, was entitled to claim plant and machinery allowances in respect of the historic expenditure.
At their simplest, these rules therefore apply where one business buys a building from another business (although the rules can apply in wider circumstances).
No allowances are due to the buyer of the building if certain requirements are not met, the main two being the ‘pooling requirement’ and the ‘fixed value requirement’.
The pooling requirement applies (from April 2014)
In simple terms, this is met if the past owner pools the relevant expenditure in a chargeable period beginning on or before the day on which the past owner ceased to own the fixture.
The fixed value requirement (from April 2012)
The ‘fixed value requirement’ applies where the past owner has made a claim in respect of the historic expenditure and has been required to bring the disposal value into their tax computations. In this situation, both parties have to make a joint election specifying what value both parties will use in their tax computations.
What can be seen is that any failure of the above rules means that the buyer is prohibited from claiming allowances, which may be substantial. Therefore, if you are thinking of buying business premises, please do get in touch with us to check the position before you sign on the dotted line.