Buying a commercial property is a significant investment. Whether it is an office building, retail unit, industrial premises, hotel or healthcare facility, the purchase price is likely to represent a substantial financial commitment.

However, one area that is sometimes overlooked during a property transaction is capital allowances.

Capital allowances can provide valuable tax relief on qualifying plant and machinery within a commercial property, including certain fixtures and integral features such as heating systems, electrical installations, air conditioning, lifts and lighting.

Ideally, capital allowances should be investigated and addressed before a property transaction completes. But what happens if you have already purchased a commercial property and no capital allowances claim was made as part of the sale?

The good news is that completing a property purchase does not automatically mean that all opportunities to claim capital allowances have been lost. In some circumstances, a post-sale claim may still be possible.

However, there are important statutory requirements, ownership considerations and time limits that need to be understood before proceeding.

What are post-sale capital allowances claims?

A post-sale capital allowances claim refers to an investigation undertaken after a commercial property transaction has completed, to establish whether the new owner can claim tax relief on qualifying expenditure associated with the property.

This might involve a property owner who:

• Purchased a commercial property without considering capital allowances.
• Completed a transaction without obtaining specialist capital allowances advice.
• Did not receive a detailed breakdown of qualifying fixtures within the purchase price.
• Has since discovered that the property contains potentially qualifying plant and machinery.
• Has acquired a property where the previous owner’s capital allowances position was not fully investigated.

A specialist review can help establish what expenditure may qualify, what allowances have previously been claimed and whether the statutory requirements for a claim have been satisfied.

It is important to understand, however, that identifying qualifying assets after completion does not automatically create an entitlement to claim. The history of the property and its previous ownership can be particularly important.

Can you claim capital allowances after purchasing a property?

Potentially, yes. However, the rules governing fixtures in commercial properties are more complex than simply identifying assets and allocating a proportion of the purchase price to them.

Under the Capital Allowances Act 2001, specific provisions apply when ownership of a property containing fixtures changes hands.

In particular, Sections 187A and 187B establish conditions that generally need to be satisfied before a purchaser can claim plant and machinery allowances on fixtures previously owned by another person.

For property transactions taking place on or after 1 April 2014 for corporation tax purposes, or 6 April 2014 for income tax purposes, two key requirements apply.

1. The pooling requirement

The previous owner must have allocated their qualifying expenditure on the relevant fixtures to a capital allowances pool before the property was transferred.

This is known as the pooling requirement.

Importantly, the previous owner does not necessarily need to have received the full benefit of the tax relief. The expenditure must have been brought into the relevant pool, but they do not necessarily need to have claimed writing-down allowances.

If the previous owner was entitled to claim but failed to pool the relevant expenditure, the new owner will generally be unable to claim allowances on that expenditure.

2. The fixed value requirement

The previous owner and the new owner must generally establish the value attributable to the fixtures.

This is normally achieved through a joint election under Section 198 of the Capital Allowances Act 2001, which fixes the amount attributed to the fixtures for both parties’ tax purposes.

The election must generally be made within two years of the property transfer.

If the parties cannot agree on the value, either party may apply to the First-tier Tribunal within the relevant two-year period to determine it.

There are also specific statutory provisions dealing with certain exceptional circumstances, so the position should be assessed on its individual facts.

These requirements are particularly important for property owners considering a claim after completion. A specialist review needs to establish whether the relevant conditions were met, or whether there is still an opportunity to satisfy them.

What if no Section 198 election was completed?

This is a situation that can arise when capital allowances were not considered during the conveyancing process.

A Section 198 election is a joint agreement between the buyer and seller that fixes the value of qualifying fixtures for capital allowances purposes.

Where the statutory requirements apply, the election is normally made within two years of the property transfer.

If a property has already completed and no election was made, this does not necessarily mean that the opportunity has been lost.

The buyer and seller may still be able to enter into an election within the relevant two-year period.

Alternatively, where the parties cannot agree, an application to the First-tier Tribunal may be possible, provided the relevant statutory deadline is met.

It is therefore worth reviewing the transaction documentation and contacting the seller promptly if the purchase completed relatively recently.

Where the two-year period has expired, the position becomes more complicated. Whether another statutory route is available will depend on the circumstances, including the previous owner’s tax position and whether the relevant requirements have been satisfied.

What if the previous owner never claimed capital allowances?

This is an important distinction.

Not claiming capital allowances and failing to pool qualifying expenditure are not necessarily the same thing.

For property transactions subject to the post-April 2014 rules, the previous owner must generally have pooled the qualifying expenditure before transferring the property.

They do not necessarily need to have claimed writing-down allowances or obtained the full tax benefit.

For example, a previous owner may have allocated the qualifying expenditure to a capital allowances pool but not made a claim to reduce their taxable profits in that accounting period.

In this situation, there may still be an opportunity for the purchaser to claim, subject to the other statutory requirements.

However, if the previous owner was entitled to claim allowances but never pooled the relevant expenditure, the purchaser will generally be unable to claim on that expenditure.

This is why investigating the previous owner’s capital allowances history is such an important part of a post-sale review.

What can a post-sale capital allowances review uncover?

Even where the original transaction did not include a detailed capital allowances assessment, a retrospective investigation may help establish whether qualifying expenditure was overlooked.

A specialist review typically involves examining the property, its fixtures, the purchase documentation and the history of previous ownership.

Potentially qualifying assets may include:

• Heating and hot water systems.
• Electrical installations and lighting.
• Air conditioning and ventilation systems.
• Lifts and escalators.
• Fire alarms and security systems.
• CCTV installations.
• Certain sanitary and kitchen installations.
• Specialist equipment associated with the property’s commercial use.

These assets can represent a significant proportion of the original construction, refurbishment or acquisition expenditure.

A review may also identify expenditure incurred directly by the current owner after completion, such as qualifying improvements, installations or refurbishment works. These should be considered separately from fixtures inherited from a previous owner, as different rules may apply.

It is important to remember that not every building component qualifies. Land, buildings and ordinary structural elements are generally excluded from plant and machinery allowances, although certain specific categories of expenditure may qualify for other forms of tax relief.

What about Structures and Buildings Allowance?

A post-sale review should not be limited to plant and machinery allowances.

The Structures and Buildings Allowance (SBA) may also be relevant, particularly where a property has been constructed, renovated or converted.

SBA provides tax relief on qualifying construction expenditure at a rate of 3% per year over a period of 33⅓ years.

Unlike plant and machinery allowances, SBA is concerned with qualifying structural and building expenditure rather than fixtures and integral features.

Where a property has already been used and subsequently sold, the new owner may be entitled to continue claiming the remaining allowance period, provided the statutory conditions are satisfied.

However, the purchaser will need to obtain the relevant allowance statement from the previous owner. Without the required statement, the qualifying expenditure for the purchaser’s claim is treated as nil.

This is another reason why obtaining the correct documentation during a property transaction is so important.

Can you amend a previous tax return to claim capital allowances?

Another area worth investigating is whether the property owner has already submitted their tax return for the accounting period in which qualifying expenditure was incurred.

For companies, HMRC confirms that capital allowances claims can be made through an amended Corporation Tax return, subject to the applicable time limits.

Generally, a company can make, amend or withdraw a capital allowances claim up to the first anniversary of the filing date for the relevant Corporation Tax return.

In most ordinary circumstances, this means the deadline is approximately two years after the end of the accounting period, although the precise deadline depends on the filing date and other circumstances.

This may provide an opportunity to revisit expenditure that was overlooked in an earlier tax computation.

However, it is important to distinguish between amending a tax return to claim relief on expenditure that the taxpayer is already entitled to claim and trying to establish an entitlement that was lost because statutory property transaction requirements were not met.

Amending a tax return cannot, by itself, remedy a failure to satisfy the pooling or fixed value requirements.

A specialist should therefore consider both the property transaction history and the relevant tax return deadlines.

Why is early specialist advice still important?

Although post-sale investigations can sometimes identify opportunities for tax relief, the process can be considerably more complicated than addressing capital allowances before completion.

Once a transaction has completed:

• The seller may be difficult to contact.
• Historical tax records may be unavailable.
• Previous owners may no longer be trading.
• The relevant two-year election period may be approaching its deadline or may have expired.
• The purchase documentation may not contain sufficient information about qualifying fixtures.
• Previous capital allowances claims may need to be reconstructed from historic records.

These challenges can make it more difficult to establish entitlement and obtain the necessary supporting evidence.

The most effective approach is to consider capital allowances at the earliest possible stage of a commercial property transaction, ideally before contracts are exchanged.

However, where this has not happened, a post-sale review may still be worthwhile.

What should commercial property owners do next?

If you have purchased a commercial property and are unsure whether capital allowances were considered, it may be worth investigating your position.

Start by gathering:

1. The original sale and purchase agreement.
2. Any capital allowances reports or schedules prepared during the transaction.
3. Any Section 198 or Section 199 elections.
4. Previous owners’ capital allowances pool information, where available.
5. Building plans, refurbishment records and relevant invoices.
6. Any Structures and Buildings Allowance statements.

A specialist can then review the available information, identify potentially qualifying expenditure and establish whether the statutory conditions for a claim have been met.

The earlier this investigation takes place, the better the opportunity to address any outstanding documentation or statutory requirements.

Conclusion

Capital allowances can represent a valuable tax-saving opportunity for commercial property owners. Yet they are frequently overlooked during property transactions, particularly where the focus is on completing the purchase rather than reviewing the property’s tax position.

While a post-sale investigation cannot guarantee that allowances will be available, it may reveal opportunities that would otherwise have remained unidentified.

If you have purchased a commercial property without investigating capital allowances, it is worth asking whether a retrospective review could identify qualifying expenditure and establish whether you are entitled to claim.

At CPA Tax, we help commercial property owners identify and maximise their entitlement to capital allowances. Whether you are considering a property purchase or have already completed a transaction, our team can help you understand your position and explore the potential tax relief available.

Sometimes, the opportunity is not necessarily gone. It simply needs investigating.

Get in touch: 

Salman Sadiq, Director Email: salman@cpatax.co.uk

Babar Khan, Director Email: bk@cpatax.co.uk