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Tax Relief on Fixtures – Don’t Miss Out!
All farm buildings have fixtures in them, such as electrical and plumbing systems, cubicles and in some instances, sanitary ware.
However, the rules for claiming the relief changed from April this year, and ignoring the changes could mean that not only will you lose out on valuable relief, but all other future owners of your property may also lose out. This could affect the potential sale of the property at a later date.
From April 2012, where a seller has already claimed allowances on fixtures installed in a property, the seller and buyer of the property must agree and fix the sale price of those fixtures between them and sign an election setting out their agreement within 2 years of the transaction, known as a Section 198 election. Both parties will have conflicting needs on what values are to be agreed here, and this should form part of the sale negotiations.
If they do not agree on a value, the matter can be referred by either party to a Tribunal. If a value is not agreed or referred in time, the buyer will not be able to claim capital allowances on those fixtures. Furthermore, no subsequent owner of the property will ever be able to claim capital allowances on those fixtures and this is likely to impact on any subsequent sales of the property and the price that can be achieved. Fixtures where no previous claim to capital allowances has been made will be unaffected by the new rules.
In our experience, too many businesses do not claim all the allowances that are available to them on the fixtures in their buildings either because they do not know the history of the property or they are not fully aware of what a claim can be made on. Sellers have often only claimed allowances on a small proportion of what they can claim on and it is therefore vital that capital allowances are considered at the pre-transaction stage.
Even more stringent requirements will come in from April 2014. These will require the seller, whether they have claimed allowances or not, to identify all fixtures in the buildings, and “pool” the expenditure before the sale takes place in order to enable the buyer to claim any capital allowances going forward. Failure to do this will mean no future owner of that property will be able to make a capital allowance claim on current fixtures in the property.
In conclusion, if you are selling or buying farming property or act for parties involved in buying and selling property it is important that capital allowances are considered early on in order to achieve the best sale price for the seller and the best tax relief for the buyer. Engaging an accountant who understands capital allowances and undertaking a valuation of the fixtures to help the negotiation process at an early stage will be crucial.