This week’s blog post is a guest blog from Nick Small, a capital allowances expert from Gateley Capitus, who provides us with a cautionary tale following a recent property purchase…
… Last week, one of my clients contacted me regarding the purchase of (another!) care home. Unlike previous purchases, this one would be via a corporate acquisition and not an asset purchase. The client wanted some input on capital allowances and asked me to liaise with his legal adviser. The target my client was acquiring had purchased the care home from the company that had built the property in 2010 and, run it as a home for a few years before going into administration in 2013.
As it is a corporate share acquisition, my client will simply ‘step into the shoes’ of the target and inherit its capital allowances position. This arrangement greatly restricts any planning I might be able to do as I am simply presented with the historic facts.
I received a copy of the sale agreement for the transfer between the original owner and our target which was silent on capital allowances,although the contract did allocate the sum of £203k to operating equipment. Having spoken with the accountant for the target, he confirmed that capital allowances had been claimed on the operating equipment but no claim had been made on the fixtures inherent in the building.
Time to cash in…
I advised my client that based upon the target’s purchase price of £5.7m, capital allowances in the region of £1.8m could be available. Job done I thought and I could get back to reading ‘Plant & Machinery Monthly’. However, it appears that the target and its legal adviser aren’t so well-versed on capital allowances. They told my client that when they acquired the property, they purchased a property, fixtures, equipment and plant. Furthermore, full capital allowances had been claimed on these assets.
The poor client thought I’d sold him a pup but when I’d spoken to the target’s accountant, he had been adamant that no claim had been made on the inherent fixtures.
A quick chat between the various advisers confirmed what I thought, the target’s legal adviser didn’t appreciate that the property itself contains fixtures and thought that the only plant and machinery was the operating equipment which had been claimed.
This confusion having been clarified, no harm was done. However without carrying out capital allowances due diligence, it is quite possible that my client and his legal adviser may have accepted the target’s assertion that it had made a full capital allowances claim and missed out on a chunk of tax relief.
So, in short, remember this cautionary tale when you are planning to purchase a commercial property.