Britain’s property owners, many of whom are everyday businesses – including hospitality businesses – are set to lose more than three quarters of a billion pounds (£785m) in unused tax relief in the coming financial year, according to capital allowances tax specialists, and ICAEW partner, Catax Solutions. Could this apply to your business?
Change will impact from 1 April 2014
After a two-year transitional period, the 2012 Finance Bill will finally be implemented on 1 April 2014. For any individual or business that owns commercial property, this date is vital: from that moment on, unless unclaimed capital allowances relief is identified and crystallised at the point at which commercial properties are bought or sold, it will be lost forever.
The problem is that very few of the parties involved in commercial property transactions — the owners, lawyers, financial advisers and accountants — are sufficiently up-to-speed with the impending changes to the tax regime. In some cases they are not aware of it at all.
And even when the various parties are aware, they will almost certainly be unable to calculate the value of the capital allowances that lie unclaimed in a commercial property, as this requires a detailed survey that is outside their area of expertise.
The result is that a very large percentage of transactions are likely to take place next year where all unclaimed capital allowances relief is lost to either the buyer or seller forever. And this will carry on during the following tax years unless awareness of this area of tax improves.
Capital allowances must be identified at the point of sale
Mark Tighe, Managing Director, Catax Solutions comments:
“Unless people sit up and take note of the dramatic legislative changes around the corner, Britain’s commercial property owners will be haemorrhaging tax relief in the coming financial year — and every year thereafter.
“If capital allowances aren’t identified and crystallised at the point of sale then they will be lost forever, meaning a loss of thousands, tens of thousands or even hundreds of thousands of pounds to the buyer or seller. And right now, there’s no doubt whatsoever that a very large percentage of transactions will take place next year without this happening: the awareness simply isn’t there.
Loss followed by litigation
“Unfortunately, the loss of a sizeable tax benefit is only the start. Things are likely to get litigious for any party that oversaw the transaction — whether lawyer, broker, accountant or financial adviser — when their clients discover that they have lost potentially sizeable tax reliefs. If awareness levels stay as they are then, from a legal standpoint, the next few years could be fractious and represent a considerable financial threat.”
Capital allowances explained
Capital allowances are a valuable form of tax relief available to anyone incurring capital expenditure buying, building or making adjustments to commercial property. They can be claimed on any kind of commercial premises, from warehouses, factories, retail stores and newsagents, to offices, dental surgeries, hotels, B&Bs and care homes — any property that is considered to be commercial.
The problem in uncovering this relief historically has been down to the difficulty identifying unclaimed capital allowances. Whereas accountants will claim on more obvious items such as shutters and curtains, fire extinguishers and carpets when a client buys a commercial property, in most cases they will not drill down to the items where the far more significant costs to a business lie. These might include air conditioning or heating systems, lighting and security systems, plant and machinery items.
Even if they did uncover the more ‘valuable’ items, the issue for accountants is that they will not have receipts for all the potentially qualifying assets within that property. Therefore they are not in a position to progress it any further.
Specialist capital allowances firms, on the other hand, use thousands of matrices to work out the purchase price of such and such an item in a building in a particular area in a particular year. They enter a building and essentially undertake a forensic audit, drawing on a far more detailed understanding of capital allowances practice and law.
About Catax Solutions
Catax Solutions is a UK-based capital allowances specialist that identifies unused capital allowances on behalf of owners of UK commercial property. To date, it has arranged more than £500m of tax relief for over 4,000 clients.
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