22 January, 2019
An issue that should be considered by the parties in all property transactions is the impact of any capital allowances, which can be claimed over expenditure on "plant and machinery" in a property as a means of saving tax. Although a pension scheme is a non-tax-paying entity, enquiries should still be made into potential capital allowances claims whether the pension scheme is acquiring or disposing of a property.
The main reason that the issue of capital allowances could still be relevant for a pension scheme is that although it is unable to claim and benefit from the allowances directly itself, any allowances can be passed to a future purchaser of the property and therefore ultimately help to increase its value for prospective purchasers.
Where a pension scheme is acquiring a property (from a tax-paying seller), enquiries should be made with the seller as to whether any expenditure on plant and machinery has been pooled for capital allowances purposes and, if so, request full details of the expenditure. The parties will then need to agree an apportionment from the purchase price setting out the amount that the pension scheme (as buyer) has paid for the plant and machinery, which will be the amount on which the buyer will be entitled to claim allowances. The higher the amount that is agreed, the greater the allowances that can be claimed by the buyer although ultimately this will be a matter of negotiation between the parties. Once agreed, the apportionment is most often recorded by the parties in a "section 198 election" to be submitted by both parties to HMRC within two years of completion of the property purchase.
Where a pension scheme is selling a property, at the outset information should be obtained of any expenditure pooled for capital allowances purposes by a previous (tax-paying) owner and any section 198 elections entered into when the pension scheme purchased the property. If there is expenditure that has been pooled, this should be set out in any sales brochures when marketing the property in order to notify prospective purchasers of the potential tax-savings they could benefit from. Once a buyer has been found, the capital allowances position should be set out in the contract.
If you would like further information or advice on the impact of capital allowances in property transactions involving pension schemes, please contact either Adam Bromley or Mohassan Mehmood in the Commercial Property team at Forbes.
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