A short summary of the effect of the new requirement for pooling capital allowances under section 198 Capital Allowances Act 2001.
From this April, unless a pooling election has been made by a vendor, the purchaser cannot claim capital allowances on the fixtures unless they can establish the actual cost, which is likely to be impossible without the vendor’s help. So the main risk is on the purchaser (or the purchaser’s lawyer)
The election itself is made on the corporation tax return. Typically a £5million building will include about £350,000 of items qualifying for capital allowances.
So as a special condition of the contract, the purchaser should be requiring the vendor to make the pooling election or, at its own expense, provide the purchaser with the information to do so. The amount in the pool also needs to be checked to see what value there is for the purchaser in the capital allowances. The issue is likely to be most critical when buying off a non-resident vendor (who may kept their dealings with HMRC to a minimum) of from a charity or pension fund (who won’t have bothered with capital allowances because they cannot use them so a purchaser has to go back to earlier owners).
For further information please contact: Michael Woodward a Consultant in the Private Client team specialising in Wealth Advisory and Tax.