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The tax rules state that the purchaser’s entitlement to capital allowances in relation to a commercial property purchase is restricted to the disposal value that the past owner 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.

Post April 2012, should a s198 election agreement not be entered into (or a decision not sought from the Tribunal), any future rights of claim to these capital allowances will be lost not only to the immediate purchaser but also to any future owner of the property.

Example:

In the tax case of Mr and Mrs Tapsell and Mr Lester as partnership The Granleys, 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.