S198/199 CONSIDERATIONS

TAX IMPLICATIONS OF BUYING OR SELLING COMMERCIAL PROPERTIES

As a Commercial Property Solicitor, you are required by law (s198 Capital Allowances Act 2001) to ensure that your client is aware of the tax implications of buying or selling commercial properties.

Many Solicitors are facing litigation risks due to consequential losses on tax savings caused by inaccurate completion of CPSEs.

If you are advising clients who are purchasing existing properties, you must consider Capital Allowance implications on fixtures and fittings. s198/199 must be accurately completed and often this requires the input of a Capital Allowance specialist.

Estimate Claim

Speak With Our Team

THE CAPITAL ALLOWANCE ACT 2001

UNDER-UTILISED COMMERCIAL PROPERTY TAX RELIEF

Section 32 of the CPSE relates to Plant and Machinery embedded within the property and must be accurately completed to avoid consequential losses to either buyer or the seller.

Where we are involved before the transaction takes place (ideally before the heads of terms are agreed) our due diligence may include the following:

Reviewing the vendor’s capital expenditure on the property during their period of ownership to establish whether they have claimed the full amount of their qualifying capital expenditure.
Reviewing the s198 CAA 2001 election, to ensure that it is correctly drafted, and included all the relevant items.
Reviewing the replies to CPSE, to ensure that they provide the relevant level of detail and appropriate confirmations.

At HMA Tax, we understand the importance of s198/199 considerations for UK commercial property solicitors and have years of experience in navigating the UK tax system.

Our team of specialist tax advisors can provide tailored advice to help you and your clients make the most of commercial property investments while ensuring compliance with s198/199.

Don’t leave your clients’ investments to chance. Contact us at HMA Tax to learn more about s198/199 considerations and how we can help you provide the best possible service to your clients.

FORM S198/199

RISKS OF iNACCURATE REPORTING

Form S198/199 relates to Plant and Machinery embedded within the property and must be accurately completed so that tax relief is not lost to either buyer or seller.

If Form s198/199 has any of the following it is likely not accurate and requires a review from HMA Tax:

The field is left ‘blank’ or ‘nil’
A £0, £1 or £2 value
States ‘Referred to Accountant’ or similar

A failure to deal with Capital Allowances correctly could result in a complete loss of Allowances for current and future taxpayers who own the property.

This is likely to have a negative impact upon the market value of the property in the future.

Contract mentioned fixtures fittings value

We were recently engaged by a property investor who owns a care home near Bristol, it was purchased for £420,000 in 2010. The original purchase contract listed ‘Fixtures & Fittings’ at £8,000 but our review uncovered that the £8,000 figure only included items such as furniture and not “Fixtures” which had not been identified, valued, or claimed.

This can happen quite frequently. When we completed our Capital Allowance review, we identified £152,500 of unclaimed capital allowances. This represents a total tax benefit of £61,000 for a 40% income tax paying owner. Quite the windfall.

Capital Gains Tax Misconception

Probably the most heard misconception, is the view that any savings achieved by claiming Capital Allowances will be cancelled out later by an increased chargeable gain (if, of course, the property is ever sold). That this is not true is made clear by s41(1) Taxation of Chargeable Gains Act 1992 (TCGA 1992).

Section 41 TCGA 1992 specifically provides that it is not necessary to deduct any Capital Allowances from the cost of an asset for capital gains purposes, so it is not possible for a Capital Allowance’s claim to create or increase a chargeable gain.

This means when you sell a property Capital Gains are based on the original cost shown in the Balance Sheet and Capital Allowances also has no effect on the calculation of any Capital Gains.

Property purchased from a council

A large office premises was purchased from the local council for £320,000 last year, this meant that the Capital Allowances history of the property was easier to track than most. The purchaser of the freehold had also recently spent in the region of £120,000 in improvements to the property.

The Capital Allowances identified for the original items picked up in the survey were £75,500 and for the improvements were £68,800. For the limited company owner this produced an overall tax saving of £27,417. As they engaged HMA Tax after investment, our team was able to claim the whole benefit at once utilising their Annual Investment Allowance.