Over a year after legislation came into force, placing new obligations on commercial property solicitors around capital allowances claims, most solicitors still do not know everything they need to about the new regime. Mark Tighe gives his five top tips
Until the Finance Act 2012, capital allowances were typically the remit of accountants. But as of 1 April 2014 (for corporation tax) or 6 April 2014 (for income tax), the issue of capital allowances relief must be raised by the acting solicitors on every commercial property transaction. Leaving the evaluation of capital allowances until after the property has changed hands is no longer an option; the topic must be dealt with at the pre-contract stage. Failure to do so is likely to lead to difficult discussions at a later stage, when it becomes apparent that clients have missed out on a significant tax-saving opportunity.
A recent survey, conducted by the Law Society in conjunction with Catax Solutions, found that solicitors are not secure in their knowledge of capital allowances legislation. Only one in five stated “I know everything I need to know about the changes to the FA 2012 and the impact of those changes on commercial property transactions”, while 70% admitted they would like to know more.
While the implications for not giving competent advice are serious, acting in accordance with the new guidelines is relatively straightforward. The tips below provide a quick guide to help you fulfil your responsibilities in commercial property transactions.
1. Understand your responsibilities
The legislation has placed a much greater burden on the conveyancing solicitor in ensuring that this tax relief is not lost at the point of sale. The solicitor has a legal requirement to provide accurate advice and service, which, in this instance, means highlighting the issue of capital allowances to the client and completing the correct documentation, with full details of the capital allowances position.
2. Get the paperwork right
Make sure you are aware of the appropriate documentation and the relevant sections to complete, to protect the capital allowances for both the vendor and the purchaser. There are two key documents here: the Commercial Property Standard Enquiries (CPSE.1) and the election under section 198 of the Capital Allowances Act 2001.
In light of the 2014 legislation changes, the British Property Federation released a version of the CPSE document including a revised section for capital allowances. If your client is the vendor, they will, under your supervision, complete the replies to CPSE.1 (version 3.4). Section 32 of the CPSE.1 (previously section 19) required full details on the capital allowances position of the property, even enquiring into the appointed capital allowances adviser.
The purpose of the section 198 election is to facilitate transparency with regards to the proportion of the purchase price allocated to fixtures at the point of sale. The items detailed in an election must be present in the property at the point of sale, and must have been or will be the subject of capital allowances claims with the designated period, therefore requiring a disposal value to be brought into account. As such, each election must be tailored specifically to suit the property in question.
3. When acting for the buyer…
- raise the topic of capital allowances as early in the transaction as possible. This will allow time for the discussions between the seller, their accountant and their capital allowances specialist.
- obtain a full response to section 32 of the CPSE.1.
- once you receive a response, seek advice from a capital allowances specialist.
4. When acting for the seller…
- work with your client, the accountant and the capital allowances specialist to ascertain whether all available allowances have been pooled appropriately.
- negotiate the final allocation of allowances: they can be retained in full or part by the seller, or entirely transferred to the new owner.
- respond to section 32 of the CPSE.1.
- complete a section 198 election notice to reflect the position.
5. Get the knowledge
All of the above points merely require solicitors to have sufficient knowledge to advise their clients on how to claim, and point them in the direction of a provider to process the claim. This can all be achieved by solicitors investing a small amount of time in capital allowances training. An experienced capital allowances specialist will be able to provide you with CPD-certified training, following which, a capital allowances procedure can be implemented that is effective for your clients and that doesn’t hold up the property transaction.
Law Society members can register on the Catax Solutions website for free access to its capital allowances helpline and portal