The little known area of capital allowances is a complex one, but one that is ignored at the peril of anyone buying or selling a commercial property or any agents involved in the transaction.
It’s also an area that, if managed correctly, could prove very lucrative for all parties involved.
Essentially, capital allowances are a form of tax relief that can be claimed by commercial property owners incurring capital expenditure when building, buying or refitting a property or properties. The benefits can be substantial. For instance, when claimed for a hotel purchased recently for almost £15.5m, the resultant benefit to the client was nearly £1.9m.
However, capital allowances are intricate. While it might be easy to locate the more obvious items on which to make a claim, it takes detailed investigation of a property to uncover the less obvious fixtures and fittings where more relief can be found. Unfortunately, in addition to this challenge, a recent change in legislation means there is now an additional hurdle — the limit on the time in which capital allowances can be claimed.
Under the Finance Act 2012, since April 2014 unclaimed capital allowances have had to be identified and documented at the point at which a commercial property is bought or sold — or they could be lost forever.
Further, the regulations covering pre-contract enquiries for commercial property transactions have been updated and now require that a capital allowances adviser be named. The government is keen to ensure that if allowances are not claimed correctly at the appropriate time, the opportunity to do so will pass.
As a result, the amount of unclaimed tax relief is mounting up. Our analysis of HMRC property transaction figures shows that somewhere in the region of £165m has been lost since the implementation of the act, with as little as 1% of eligible commercial properties having had any relief claimed.
There’s also a more ominous side to all of this. Potentially lost tax benefits could mean that litigious proceedings might not be far away. As business owners become aware of the missed opportunity, it’s just a question of when, not if, compensation is sought by ill-advised property owners.
Mark Tighe is managing director of capital allowances consultancy Catax Solutions