This Content Was Last Updated on February 9, 2017 by Jessica Garbett


Recent Finance Acts have been a game changer when it comes to claiming capital allowances on integral features forming party of a property sale or purchase. 

The latest changes to capital allowances on integral features require practitioners to be on the ball when dealing with property transactions. Not only is there a series of steps to go through but there is also a relatively short window for doing so. Practitioners need to be mindful of the changes to avoid any costly mistakes.

Integral fixtures

Capital allowances are available on integral features at the reduced rate of 8% writing down allowance. Additions would generally be added to a reduced rate capital allowances pool. However, it should be remembered that integral features are eligible for the annual investment allowance of 100%. A business would generally be well advised to claim annual investment allowance against plant and machinery that qualifies for the lower rate writing down allowance, rather than the general writing down allowance rate of 18%.

Integral features are defined in Capital Allowances Act (CAA) 2001, s.173 as:

‘plant and machinery that is so installed or otherwise fixed in or to a building’. Typical examples of the types of asset on which capital allowances could be claimed would be heating systems, air conditioning, moveable partitioning, lifts, escalators, alarm systems etc.

Given the wide definition provided by CAA 2001, s173, most buildings would generally come with some element of integral feature on which capital allowances may be claimed. It is now even more crucial than ever that items which qualify for capital allowance are identified at the earliest opportunity.

There are also specialist firms in the market who may seek to target your clients, offering to review the capital allowances being claimed on integral features on a no win/no fee basis.

The rules from April 2012

Prior to April 2012, where a building contained fixtures, the parties could fix the part of the price apportioned to the fixtures by agreeing what is known as a section 198 election. Alternatively if no apportionment was agreed, the buyer could make its own apportionment on a just and reasonable basis.

The position has, however, changed from April 2012 and the new rules are more onerous. The buyer of a second hand building will only be able to make a claim for capital allowances if it can show that two new requirements are met. These are the:

  • pooling requirement
  • fixed value requirement.

(Note, the pooling requirement will only be imposed from April 2014, whereas the fixed value requirement took effect immediately from April 2012.)

Pooling requirement

The pooling requirement imposes a requirement that the vendor must have pooled its expenditure on fixtures in a chargeable period before the building is sold. Pooling expenditure means that either:

  • the seller claimed capital allowances on the asset
  • the expenditure has been added to the plant and machinery pool, without having actually claimed any allowances.

As mentioned, this requirement will become mandatory for second-hand property transactions from April 2014 onwards.

Fixed value requirement

The fixed value requirement means that the part of the price apportioned to fixtures in the building must be fixed either by:

  • the seller and buyer agreeing and entering into an election under CAA 2001, s198, either at the time of purchase or any time up to two years after the date of purchase at the time of the purchase
  • by application to the First Tier Tax Tribunal within two years of the purchase.

The Tribunal route would generally be adopted if the seller and purchaser fail to reach an agreement.

As mentioned, this is a requirement for any second-hand property transactions from April 2012.

Let us look at the new rules by way of an example:

Bony Ltd purchases a hotel in Swansea marina in December 2013. The company wishes to maximise its capital allowances claim on any eligible fixtures and fittings. The hotel was originally built and brought into use in 2000. The vendor, Michu Ltd, acquired the property in 2006 from Trundle Ltd.

Let us consider the capital allowances position on the following assets:

  1. Lighting and wiring  installed in February 2003 at a cost of £30,000. At that time, such an asset did not qualify for capital allowance. However, following the introduction of the rules for integral features from April 2008, capital allowances are now potentially due on the lighting system.
  2. A new air conditioning system installed for £40,000 in January 2009. Capital allowances have been claimed.
  3. A review by a capital allowances specialist has established that a lift was installed for £10,000 in the premises in June 2010 but the asset has not been pooled and capital allowances have not been claimed.

The capital allowances claim should be approached as follows:

Lighting and wiring – capital allowances may be claimed based on the market value of the asset at the date of acquisition.  There is no need to meet either the pooling requirement or the fixed value requirement as mentioned above.

Air conditioning system – a transfer value must be agreed Michu Ltd and Bony Ltd. An election under CAA 2001, s198 must be submitted to HMRC within two years of the transfer. If this cannot be obtained, then Bony Ltd would need to take the issue to the Tax Tribunal to establish a value.

Lift – the situation is the same as for the air conditioning system. As the transfer is taking place before April 2014, the fact that Michu Ltd has not previously claimed capital allowances or pooled the expenditure is irrelevant. If, however, the transfer took place from April 2014 onward, then no capital allowances could be claimed as the pooling requirement has not been met.

Article via ACCA