As much as one third of commercial property purchase value being lost in unclaimed tax allowances in the UK

Tax threat to property sale values looms
Tax threat to property sale values looms

It’s set to be a double whammy for businesses across the UK once the changes in the Finance Act take effect in April 2014. Unclaimed property allowances estimated at millions of pounds are lost by business owners and with new taxes, there is the risk of significantly reducing the value of their properties.

More alarming is the tougher line being taken by the HMRC under their new rules being applied when properties are sold or change hands. It states that a new buyer and all future owners may lose out on tax allowance for commercial building fixtures.

The warning comes from a senior tax consultant at global information services company Wolters Kluwer. According to Neil Tipping, Senior Tax Consultant at CCH (http://www.cch.co.uk), Wolters Kluwer’s global tax and accounting business: “It is no exaggeration to say that the vast majority of commercial properties have embedded fixtures for which their owners and accountants have never claimed tax relief.

“It may sound too good to be true, but our experience working with a range of businesses, and their financial and legal advisers, confirms the extent of the dormant tax benefit nestling in ‘integral features’ of buildings,” the Wolters Kluwer tax consultant explains.

The long and varied list of these embedded assets includes electrical and cold water systems, air conditioning, radiators, partitioning and external solar shading. Unless a company has already had its buildings and books reviewed by specialist surveyors and tax experts there are almost certainly unclaimed allowances available.

“From offices to factories, hotels to golf clubs and restaurants, capital allowances for integral features typically account for 10% to 30% or more of the purchase price of a property (Note 1). We have so far discovered millions of pounds of quantifiable expenditure,” Neil Tipping says.

“It is important to be aware that there is no time bar on how far back the search for relevant expenditure can go,” he adds.

HMRC does not have a problem with properly structured and researched capital allowance claims, but it has signalled a tougher line under new rules that apply when properties change hands. Capital allowances for fixtures could be lost to the buyer and all future owners, following the changes in the Finance Act 2012.

Since April 2012, property sellers who have claimed or intend to claim allowances for integral features must agree a fixed value for the transfer. And from April 2014, sellers who have not yet claimed must also ‘pool’ – though not necessarily claim – these allowances to keep them alive for future owners. In both cases there is a two-year window of opportunity and other conditions apply(Note 2).
These changes have far-reaching implications for property buyers – and also accountants, tax advisers, property agents and solicitors, Neil Tipping advises.

“Failure to identify hidden capital allowances could destroy value and significantly reduce the market valuation of properties. These changes complicate an aspect of capital allowances that was already shrouded in confusion, and they raise the stakes for all involved in commercial property,” the tax expert warns.