Tax implications of buying or selling commercial properties

As a Commercial Property Solicitor, you are required by law (S198 Capital Allowances Act 2001) to ensure that your clients are fully aware of the tax implications involved in buying or selling commercial properties.

The Importance of S198/199

Accurately completing S198/199 is essential. This process requires the input of a Capital Allowance specialist, particularly when advising clients purchasing existing properties. It’s crucial to consider capital allowances on fixtures and fittings, which can include items like commercial kitchens, bars, lighting, toilets, security systems, and fire alarms. These allowances often represent thousands of pounds in unclaimed tax relief.

Due Diligence in Property Transactions

When involved before the transaction (ideally before agreeing on the heads of terms), our due diligence may include:

• Reviewing the vendor’s capital expenditure to establish if they have claimed their full qualifying capital expenditure.
• Ensuring the S198 CAA 2001 election is correctly drafted, including all relevant items.
• Checking the replies to CPSE for the required detail and appropriate confirmations.

Fixture Considerations

A fixture comprises everything that cannot be removed without damaging the property. For example, if a tenant removes a kitchen sink, it doesn’t count as forfeiture under S198 if removing every attachment point damages the property. Thus, the role of expert surveyors and tax specialists is critical in identifying, valuing, and claiming all possible Capital Allowances.

Advising on New Building Purchases

When advising clients on the purchase of new buildings, ensure that the contract for sale by conditional auction accounts for the vendor’s obligations under section 198 of the Capital Allowance Act 2001. This consideration may require amendments to your client’s contract to avoid any disadvantages.

Avoiding Litigation Risks

It is vital to consider all aspects of the Capital Allowances Act 2001 when advising on commercial property transactions to mitigate litigation risks. Inaccurate completion of CPSEs has led many Solicitors to face consequential losses on tax savings.

Our specialist team can review your client base and providing total indemnification for you or your firm while uncovering significant tax relief for your clients.

At HMA Tax, we collaborate with hundreds of legal practices across the UK, providing specialised advice for Solicitors assisting their clients in property transactions, ensuring that their clients receive the tax relief that they are entitled to.

General Guidelines for Capital Allowance Advice

• There is no distinction between new and existing properties for Capital Allowance claims; both can qualify for benefits under this legislation.
• If there’s doubt about whether an asset qualifies as commercial property, consult HMA Tax and check our Solicitors Resource Hub for guidance.

Impact of Capital Allowances

Capital Allowances can significantly affect the cost of purchasing and selling property. As S198/199 must be accurately completed, it is vital to keep them in mind when advising clients.

Further Assistance

If you own a commercial property and seek more information on improving your tax position, please contact Andy Milnes, Senior Claims Specialist, at 01384 904090 or email andy@hma.tax.