Tax reliefs on fixtures of commercial properties still today extensively overlooked by accountants. CCH, a leading provider of taxation publications, estimates that more than half of property owners have not been advised yet of these claims.
What are fixtures?
Fixtures, for tax purposes, have a unique definition from that used for accounting purposes. This difference generates confusion which has resulted in lost tax refunds for the property owner. These claims will remain unnoticed since it is not the interest of HMR&C to alert the tax payer.
When we talk of fixtures for tax purposes we refer to items that are attached to the fabric of the building and on which capital allowances can be claimed, like for instance sanitary ware and security systems. Finance Act 2008 generously extended this definition with the introduction of ‘integral features’, for example an electrical or cold water system.
Depending on the type of property, the value of the fixtures may vary between 15% and 35% of the total property’s value. It is a substantial amount that is often left unnoticed to the detriment of the property owner.
When a property is bought, the tax value of its fixtures is determined by a ‘just and reasonable apportionment’ of the purchase price. Such apportionment considers the replacement cost of the fixtures, the building and its bare land. It may sound surprising to know that the value given to the fixtures on the purchase agreement of the property is totally irrelevant for tax purposes.
However this is where the opportunity lies.
By using a Quantity Surveyor the Tax Adviser can determine a much higher value of the fixtures that will result in a substantial tax refund. Interestingly HMR&C also uses the Valuation Office Agency to determine the value of the fixtures that are being claimed. The reluctance of advisers to involve other professionals (e.g. a surveyor) also explains why this claim has been so extensively overlooked.
The good news is that, at the moment, late claims can still be put forward on properties’ fixtures even years after the property was bought.
Be aware that the value of the claim can be subject to two main restrictions.
The first occurs when a joint election had been signed between the vendor and the buyer to fix the tax value of the fixtures contained in the property. The second restriction sets a maximum ‘cap’ to the value of the claim where it relates to items that the vendor had previously claimed under the capital allowances regime.
Notwithstanding these restrictions, the survey often highlights items for which no previous claim was put forward by the unaware vendor: this will represent a separate claim on the entirety of the item discovered. This situation should not be a surprise given that the ‘integral features’ regime only came in force on April 2008.
Who is the claim for?
Commercial properties for the purpose of this claim include also: Offices, Pubs & Restaurants, Hotels, Nursing Homes, Furnished Holiday Lets, Golf Clubhouses and Doctors/Dentist Surgeries.
The approach of HMR&C has been to make this claim more burdensome by charging the claimant with some responsibility as HMR&C Manuals clearly indicate. In fact when fixtures have been previously claimed by the vendor it is the responsibility of the new owner “to obtain and provide details of the past owner and the disposal value” (that will limit the claim of the new owner).
In a recent case law of 2011 (The Granleys v HMRC) the tribunal in fact rejected the claim because the claimants failed to discharge this burden of proof and were unable to provide details of the previous owner’s claim and its disposal value.
This absence of a time limit, together with the absence of an agreed sale value of the fixtures, is causing a problem to HM Treasury. On the 6th December 2011 HMR&C finalised a consultation with clauses to be incorporated in the next Finance Act 2012. This will impose further conditions to be able to make ‘late claims’ and will insist on the agreement of a tax value between the vendor and the purchaser of the property.
Is there still an opportunity?
The changes to the fixtures regime have already been drafted by HMR&C in clauses for the next Finance Act, however the opportunity is still here for the property owner to grab.
Reluctance can be caused by the fear of incurring the fees of a surveyor and that of a tax adviser with no certainty as to the result of the claim.
Certax Accounting has decided to remove entirely such element of risk.
The ‘Capital Allowance Surveying Service’ is offered on a contingent basis, i.e. on a “No Win No Fees” basis. Only if qualifying capital allowances are found the owner will have to pay a small percentage of the tax savings available.
You can have an idea of the substantial tax refunds that have been generated by this new service by looking at recent case studies.
For more information about this claim please contact Vincenzo Rubino to arrange an initial free of charge consultation. Vincenzo can be contacted on 01326 218306 or on firstname.lastname@example.org
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