The second phase of the planned changes to capital allowances legislation in relation to fixtures and fittings acquired as part of a property transaction came into effect from 1 April 2014 (corporation tax) and 6 April 2014 (income tax).
The first phase came into effect in April 2012, whereby the buyer was required to agree with the seller a figure for the capital allowances that were to transfer across with the sale of the property by way of a CAA2001 s.198 election, provided that the seller had made a claim for capital allowances in the first instance. If no claim had been made by the seller, then one was able to proceed as usual.
However, in addition to the changes of April 2012, it was announced that from April 2014 there would be a mandatory pooling requirement in order for the capital allowances to be claimed. Therefore, it is critical that capital allowances are dealt with during the transaction, since failure to do so will result in losing these allowances, not only for the current buyer but for all subsequent buyers.
The only instance where the mandatory pooling requirement does not apply is when the seller themselves were not eligible to claim capital allowances, for example a developer.
These rules only apply to current and future transactions and, contrary to what some articles/advertisements are suggesting those who have owned property prior to April 2014 are not directly affected by the new rules and thus capital allowances can be claimed by them any time prior to selling the property, although unless the allowances are pooled future owners will lose the entitlement to claim capital allowances.
Private client tax