Maximising capital allowances reduces taxable profit, resulting in reduced tax liability which brings significant cash savings for UK corporate and income taxpayers. Although a legislative allowance Capital Allowances 2001 (CAA2001), eligible claimants miss out on considerable cash savings, due to poor advice or lack of understanding.
At Wandsworth Consulting, we have found that there are many common myths surrounding capital allowances UK, and we explore some of those key myths below.
What does Fixed Value/Mandatory Pooling mean?
Since 2012, where a property transaction occurs where the vendor has entitlement to claim capital allowances. Both parties have to agree the value of allowances passed onto the purchaser. The value of allowances is based on the original cost of the vendor with allowances passed over to the purchaser by way of joint election. The value of the allowances can be anything between (vendors) original cost (beneficial to the purchaser) and £1 (beneficial to the vendor). The vendor also must show the allowances were pooled within their accounts.
What is a Joint Election (CAA2001 s.198)?
A joint election is a document stating the value of the allowances passed between vendor and purchaser, to be a valid, the document has to provide (for both parties) names, unique tax reference (UTR), property address and title number, list of relevant plant, value of allowances, signatures. The election must be completed within 2 years of completion of the property transaction.
Is there any other way of passing allowances?
The short answer is no. The value of the election should form part of the negotiation process, and can be dictated by many factors including tax liabilities, for example, if the vendor does not have any tax liabilities why, retain allowances. If the allowances are not addressed or, election completed then all allowances are lost and no savings can be realised. This is more often than not down to poor or no advice from both parties. A reputable specialist will be able to oversee the process for both, purchaser and vendor.
So if the vendor can’t claim we’re good right?
If the vendor cannot claim allowances (i.e. purchase off a developer) then the purchaser can prepare an apportionment claim based on their purchase price. However, there needs to be a statement inserted into the sale/purchase contract from the vendor confirming that they cannot claim allowances.
Summary
With Capital Allowances becoming more and more complex and compliant, the need for a specialist is more prominent than ever. The experienced team at Wandsworth will work with your finance and project teams, and through correct tax planning, due diligence, collation, and reporting; we will ensure that all allowances and savings are maximised.
