Tax & Accounting News

Capital Allowances On Tenants’ Fixtures

23/10/2009

Usually, a purchaser of commercial property can benefit from claiming Capital Allowances on plant and machinery within the premises, such as lifts, air conditioning units or electrical systems. This applies whether the fixtures were installed by the developer or a previous owner. However, if the fixtures were put in by a tenant, things are a little more complicated.

In order for a taxpayer to claim plant and machinery allowances, the taxpayer must first have incurred ‘qualifying expenditure’ – whether that was in the development, purchase or refurbishment of the property concerned. Where the expenditure concerns the purchase of a property, the qualifying expenditure will be established by apportioning the price paid in accordance with the Capital Allowances Act (CAA) 2001. Whether such a claim can reasonably be made, however, depends on the nature of the fixtures and fittings concerned – whilst a lift or air conditioning system could reasonably be said to add value for most owners, some fixtures are very specific to the business of the tenant who installed them, and so would have little value to a future occupant.

There is also the question of ownership of the fixtures concerned, which is determined by the CAA, not regular property law. Usually, the interest to which Capital Allowances are attached will be the interest in land originally held by the developer, or whoever installed the fixtures into the property. Plant and machinery installed by a tenant will be treated as owned by the tenant for Capital Allowances purposes, even where the fixtures may have become part of the landlord’s property under property law.

Even if a property is acquired with vacant possession, if a previous tenant has claimed for Capital Allowances, the purchaser would not be allowed to make a further claim. It is crucial that taxpayers correctly apply the fixtures legislation when making a claim for Capital Allowances on a property acquisition, which requires understanding of the legislation and a detailed knowledge of the fixtures within the property.

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