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The tax rules state that the purchaser’s entitlement to capital allowances in relation to commercial property be restricted to the disposal value that the vendor of the property brought into account, even if this was not the immediate past owner. Furthermore, it is the purchaser’s responsibility to obtain and provide details of prior claims and disposal values, which might prove difficult if the original owner has ceased trading or if records are no longer available.

Since April 2014, it is also a condition that the vendor must ‘pool’ the qualifying expenditure (i.e., add it to his or her own capital allowances computations). This includes expenditure incurred many years beforehand, which the vendor may have neglected to claim thus far.

There are some categories of expenditure that the vendor may not have been able to claim when the costs were incurred – these may pass through to the purchaser without having been pooled, or be included in a joint s198 election. The most likely category is integral features installed before April 2008.

Example:
In the tax case of Mr and Mrs Tapsell and Mr Lester (as partnership ‘The Granleys’) v HMRC (2011), the partners purchased a care home as a going concern of which £40,000 was allocated to ‘fixtures and fittings’; they made a claim for capital allowances thereon of £146,014. This figure was based on an apportionment of £106,014 relating to the purchase of the plant and machinery fixtures in the property plus £40,000 as shown in the contract.

Shortly afterwards, the sellers submitted a capital allowances claim for £68,811 for the same tax year. They provided no supporting details to HMRC; they then emigrated and could not be traced by either the purchasers or HMRC.

HMRC disallowed the purchasers’ capital allowances claim on the grounds that they failed to show that the same expenditure on plant and machinery had not been claimed by the sellers.