A new ruling coming into effect this month in April means that anyone buying commercial property will be required to make certain steps to qualify for future tax breaks.

Whereas previously somebody buying a property could make a claim for unclaimed capital allowances many years after acquisition, HMRC are changing the rules meaning that key important steps must now be taken prior to sale.

The new rules require that where it is established that a seller was entitled to claim capital allowances but has not done so, the seller must 'pool' the value of the qualifying fixtures in a building in its tax return before the sale of the relevant property.

Matthew Hodgson, Tax Partner in the Manchester office of international accountants UHY Hacker Young explained: “Once 'pooled', the seller and buyer must agree on a value for the fixtures within two years of sale, and make a mandatory s198 election to this effect. This value should be agreed at the time of sale as part of the negotiations on the property.”

Matthew also said that the purchaser’s solicitors will need to ensure they receive a properly completed section 19 of the standard form of commercial property standard enquiries (known as a CPSE form) to determine the capital allowances history for the property being sold.  This is something that has been ignored or incorrectly completed in the majority of cases in the past.

“Overlooking the s198 election agreement as part of the sale process could have far-reaching consequences for all subsequent owners of that property,” said Matthew. “If these important new requirements are not met, no capital allowances will ever be available to the buyer, or any future owner, of the property. The mandatory pooling and obligatory s198 election will therefore have a huge impact on all parties involved in commercial property transactions, and if the claim is not made correctly or ignored, there could be considerable adverse financial consequences.”

Purchasers would therefore be advised to ensure that the sale and purchase agreement contains either a warranty that the seller has pooled its capital expenditure on fixtures in the property or an undertaking that it will do so prior to completion of the transfer of the property.