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Finance Act 2012

New Section 187A Effect of changes in ownership of a fixture

4.New subsection (1) of section 187A sets out the circumstances in which the section applies.  It applies if :

  • a current owner incurs capital expenditure on acquiring a property containing fixtures from another person, for the purposes of his business;

  • that other person, or a previous owner, is treated as having been the owner of the fixtures at a relevant earlier time (see new subsection (2) and new section 187B (4) and (5)) as a result of incurring other expenditure (“historic expenditure”) on their   provision, for the purposes of a business carried on by that past owner;

  • that past, business owner was entitled to claim plant and machinery allowances (PMAs) in respect of the historic expenditure; but -

The new section does not apply if the previous owner was only entitled to relief by virtue of the contributions legislation in section 538, CAA.

5.New subsection (2) explains what is meant by:

  • “the past owner”. In respect of an amount of historic expenditure, it is the person who was entitled to claim most recently in respect of that amount; and

  • “relevant earlier time.”  This has the meaning given by new section 187B (4) and (5).

6.New subsection (3) provides that the qualifying expenditure incurred by the new owner is to be treated as nil if -

  • the “pooling requirement”(see new subsection (4)) is not satisfied;

  • “the fixed value requirement” (see new subsections (5),to (8)) applies but is not satisfied; or

  • “the disposal value statement requirement” (see new subsections (10) and (11)) applies but is not satisfied,

in relation to the past owner.  So, in all cases to which this new section applies, the pooling requirement must be satisfied.  In addition, one or other of the “value” requirements will apply and must be satisfied in every case to which this new section applies.  (In practice, the “fixed value requirement” will apply in the vast majority of cases and the “disposal value statement requirement” is likely only to apply very infrequently.)

7.New subsection (4) explains “the pooling requirement”. It provides that the historic expenditure must have been allocated to a pool in a chargeable period beginning on or before the day on which the past owner ceased to own the fixture, or the past owner claimed a first-year allowance on the expenditure (or any part of it).

8.New subsection (5) explains when “the fixed value” requirement applies.  It only applies where the past owner is or has been required to bring the disposal value of the plant or machinery into account in accordance with one of three particular disposal events described in the Table in section 196, CAA. (The relevant disposal events are items 1, 5 or 9 in that Table.   Item 1 covers the case of a market value sale; item 5 covers the case of an incoming lessee paying a capital sum for the lease, which sum falls to be treated in whole or part as expenditure on the provision of the fixture; and item 9 covers the case of a past owner, who permanently discontinues his business, followed by a sale of the qualifying interest in the property, including its fixtures.  This last case should be distinguished from the example given in relation to items 1, 5 or 9 in that Table.   Item 1 covers the case of a market value sale; item 5 covers the case of an incoming lessee paying a capital sum for the lease, which sum falls to be treated in whole or part as expenditure on the provision of the fixture; and item 9 covers the case of a past owner, who permanently discontinues his business, followed by a sale of the qualifying interest in the property, including its fixtures.  This last case should be distinguished from the example given in relation to items 1, 5 or 9 in that Table.   Item 1 covers the case of a market value sale; item 5 covers the case of an incoming lessee paying a capital sum for the lease, which sum falls to be treated in whole or part as expenditure on the provision of the fixture; and item 9 covers the case of a past owner, who permanently discontinues his business, followed by a sale of the qualifying interest in the property, including its fixtures.  This last case should be distinguished from the example given in relation to

9.New subsection (6) explains that the fixed value requirement is met when one of two outcomes occurs.  That is, either:

(a)

‘a relevant apportionment of the apportionable sum has been made’ (see new subsection (7); or

(b)

the current owner has obtained certain statements where the property is acquired from someone other than “the past owner”, as defined in subsection (2) (see new subsection (8))

The overwhelming majority of commercial property transactions involving second-hand fixtures will fall within  new subsection 6(a) (see new subsection (7) below for more information),

New subsection (6) (b) is a change from the draft legislation published for consultation on 6 December 2011 (see new subsection (8) below for more information).

10.New subsection (7) explains that a relevant apportionment is made if –

(a)

the Tribunal has determined the part of the sale price that constitutes the disposal value of the fixtures, on an application made by one of the affected parties within two years of the purchaser’s acquisition; or

(b)

there has been a joint election, under either section 198 or section 199 of CAA, as appropriate, between the past owner and the purchaser within two years of the acquisition (or, if an application to the tribunal is made within two years, and not determined or withdrawn, before the end of that period before that application is determined or withdrawn).

11.The overwhelming majority of commercial property transactions involving second-hand fixtures will involve a relevant apportionment, so that there will be the requirement for a reference to the tribunal, or for a joint election to be made, within two years of a sale.  In fact, it is to be expected that a joint election (option (b) above), under section 198 or 199 of CAA, will be the preferred course in the vast majority of cases.  This is because it will clearly not be in the interests of either side to incur the trouble and any cost of going to a tribunal unnecessarily, in any case where it would have been possible to agree an apportioned value voluntarily.

12.New subsection (8) introduces a relaxation to the draft legislation published for consultation on 6 December 2011 to help ensure that it applies fairly.  Under the consultation draft of the legislation, an immediate purchaser, who was not entitled to claim an allowance (for example, a charity) should have ensured that the “fixed value requirement” was satisfied (either by entering into a joint section 198 or 199 of CAA election with the past owner, or by applying to the tribunal to determine the apportionment) if that purchaser wanted to be able to pass on an entitlement to claim allowances on those fixtures to a new owner in the future.

13.Persons who are not entitled to claim an allowance (such as charities that are not chargeable to tax) buying property from ‘past owners’ are entitled to make a section 198 or 199 of CAA election, or to apply to the tribunal for a determination of the fixtures value, if they wish to do so.  They may wish to do so, in order to enable a future business purchaser to claim in respect of those fixtures, thereby potentially enhancing or protecting the value of their property investment.  If they duly elect or apply to the tribunal, they will then be able to provide the election notice or tribunal determination to a new owner, on a later sale, thereby establishing the new owner’s entitlement to allowances on those fixtures.

14.However, it is possible that non-taxpayers, such as charities, may have scant knowledge or awareness of the capital allowances legislation and may therefore inadvertently omit to follow either of the election or tribunal procedures for making a fixtures' apportionment.  Of course, it may be that the non-taxpayer had informally agreed with the seller that the seller could return a nil disposal value for the fixtures, precisely because the non-taxpayer was uninterested in the capital allowances.  Indeed, it could even be that the non-taxpayer obtained the property for a somewhat lower price in consequence of allowing this.  In such a situation, the expenditure on the fixtures would have been written off in full in the hands of the seller and it would be in accordance with the underlying policy for those fixtures to have a nil value in the hands the current owner, purchasing the property from the non-taxpayer.  However, in a case where it can be formally demonstrated by the past owner that he returned a specific disposal value for those fixtures, and that it is too late for the non-business purchaser to fix an apportionment with him, a narrowly defined exception from the normal rule appears to be justified.

15.New subsection (8) therefore provides that, in these circumstances, if the current owner obtains a written statement made by the ‘purchaser from the past owner’ (in our example, say, a charity) that new subsection (6) (a) has not been met and is no longer capable of being met, and also a written statement made by the past owner of the actual amount of the disposal value that the past owner, in fact, brought into account, then the “fixed value requirement” would be regarded as met in that way.  The expression ‘purchaser from the past owner’ in subsection (6)(b) means, in effect, an intermediate owner or lessee who was not entitled to claim an allowance, and who acquired an interest in the fixtures from a “past owner”, who was so entitled to claim.

16.New subsection (9) defines various expression used in new subsections (6) to (8), and gives the statutory meaning of “election” for the three affected disposal events.  That is, if the disposal event falls within item 1 or 9 of the Table in section 196, the election will be under section 198 of CAA, whereas if the disposal event falls within item 5 of that Table, the election will be under section 199 of CAA.

17.New subsection (10) explains when “the disposal value statement requirement” applies. This provision is designed to cater for a very small subset of disposal events that may have occurred, other than by virtue of an immediate sale of, or grant of a lease of, the fixtures by a person carrying on a qualifying activity.  The requirement would apply if, for example, a past owner had previously permanently ceased his business activity, finalising his cessation accounts and tax return, in which he would have been required to bring the market value of the fixtures, at that time, into account, in accordance with item 7 of the Table in section 61 of CAA.  If, some years later, he then decided to sell his former business premises with its fixtures to a purchaser, “the disposal value statement requirement” would apply.

18.New subsection (11) explains how “the disposal value statement requirement” is satisfied.  This is done by the past owner making a written statement of the amount of the disposal value of the fixtures that he is, or has been, required to bring into account, within two years of the date when he ceased to own them.  The current owner must obtain this statement, or a copy of it, either directly or indirectly from the past owner.

Thus if, for example, the immediate purchaser is not a business, but a later purchaser is a business, the later purchaser may obtain the required statement either directly from the past owner, or indirectly from the intermediate owner, who sold the property to the current owner.  As with the “fixed value requirement”, an intermediate purchaser, who is not a business should ensure that he obtains this written statement from the past owner, if he wants to make sure that he is able to pass on an entitlement to claim on those fixtures to a future owner.  However, the later owner is free to try to obtain the statement, or a copy of it, directly from the past owner, if the past owner is still contactable and willing to oblige.

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