Purchasing property is never straightforward and is often costly. Generally, you get no tax relief on the purchase of land and buildings until they are sold. However, that is not always the case and advice should be sought when you are buying buildings as there can be tax relief available on certain elements within a building.

All buildings are likely to have some form of fixtures which will qualify for capital allowances, with the fixtures being items installed or fixed in or to the building. Fixtures could include internal electrics, plumbing, heating, kitchens and bathrooms as well as fixed equipment in milking parlours, poultry buildings and other livestock sheds.

Tax relief is claimable on fixtures through capital allowances, with the annual investment allowance providing relief of up to £200K against profits in any accounting year. Unfortunately there is no relief for fittings in a residential rental cottage; however, if you are buying a farm workers cottage or a holiday let there could be relief available.

In order to claim for the fixtures, the seller of the property must have claimed relief for the fixtures in the first place. If they have not claimed relief then they will need to assess what expenditure would qualify and “pool” this in an accounting period beginning on or before the seller ceases to be treated as the owner. If this does not happen then no relief can be claimed by future owners. Negotiation is, therefore, a key to ensuring the pooling requirement is met and to agree on an apportionment of the sale proceeds to the fixtures, by way of an election within two years of the sale.

As an example, if land and buildings are purchased for £2M this could include land and buildings for say £1.89M, £100K for fixtures, and entitlements for say £10K. The buyer and seller could elect to agree on the values, and the buyer would be able to claim capital allowances of up to £100K against the business profits in the year of purchase, saving £19-47K depending on the marginal tax rate.

 

Capital Allowances

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