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Finance Act 2012 - Capital Allowances

Capital Allowances are a form of tax relief which can be set against Income or Corporation Tax. They are based on the capital expenditure incurred on the provision and installation of certain assets within a commercial building.

The types of asset that capital allowances apply to include: heating systems, air conditioning, fire precautions, lifts, security equipment, emergency lighting, demountable partitioning and many others.

Capital Allowances are not a “tax scheme” or a “tax loophole”. They are an entitlement to UK owners of commercial property. To qualify, the property owner or occupier must be a UK tax payer and must:

  • Incur capital expenditure on qualifying assets;
  • Use those assets within the course of its trade, either as an investor or occupier of the building;
  • Demonstrate that it owns those qualifying assets.

Although there is currently no time limit on claiming capital allowances on historic expenditure that has been overlooked, the Finance Act 2012 will bring in changes to the Capital Allowances rules from April 2012.

Pooling of Fixtures:

In relation to expenditure incurred before April 2012, it will still be possible to pool that expenditure and to claim capital allowances at any time prior to the sale of a property.  However, if the expenditure is incurred from April 2012, the position changes. The changes include:

1.  A requirement that a joint tax election is made between the seller and the purchaser within 2 years of the sale so as to fix the value of the fixtures that were transferred. In the event that agreement cannot be reached, a tribunal will determine the value.

2. The decision on the election value will be down to the parties to agree on a free and commercial basis. There will be no requirement that the joint tax election be fixed at the Tax Written Down Value

Feed in Tariffs (FIT) and Renewable Heat Incentives (RHI):

Where tariffs are paid in respect of electricity or heat generated under the FIT or RHI schemes, Enhanced Capital Allowances will be denied. Expenditure on Solar Panels will qualify as Special Rate expenditure from April 2012

Writing Down Allowances:

As from April 2012:

1.   The main rate of corporation tax will fall to 25%;

2.   Writing down allowances for General Pool Plant will fall to 18%;

3.   Writing down allowances for Special Rate Pool will fall to 8%.

Office of Tax Simplification (OTS):

As part of the OTS review, flat conversion allowances and Safety at Sports Ground capital allowances are to be abolished from April 2013

Business Premises Renovation Allowances (BPRA):

BPRA is extended by 5 years but is to be limited to 20 million Euros per project if the expenditure is incurred on or after 11th April 2012.

Where a property which has qualified for BPRA is sold and a balancing charge arises, the new owner is able to claim plant and machinery allowances on the residue of those fixtures.

Contact Andrew Peach, Partner in our Commercial Property team for further advice, either by telephone on 01306 502270 or by email - a.peach@downslaw.co.uk.

Posted on 23/02/2012 by Pam Bowring

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