Capital Allowances – The New Fixtures Rules

New rules came into effect from April 2012

Capital allowances are a valuable form of tax relief for businesses who acquire commercial property.  But recent changes in tax law mean that there are now many more traps and pitfalls that need to be avoided in order to ensure the allowances  are available.  The aim of this brief guide is to explain the new rules, and how they might affect you going forward.


Capital allowances are available to be claimed in respect of  ‘qualifying items’ contained within a commercial property owned by a business.  They can be used to reduce taxable profits, and act as a replacement for (non-deductible) depreciation.  Items which typically qualify include:

  • Air conditioning
  • Heating equipment
  • Electrical and lighting systems
  • Water systems
  • Sanitary ware

If the current owner installs such items then provided other conditions are met (the main one being that they must be using the items for the purposes of  a qualifying business activity) then they are entitled to the allowances.

Problems start to arise where the property is acquired second hand. As there can be more than one party who could make, or has made, a claim.  The taxpayer therefore has to follow a complex set of rules in order to establish the right to and quantify the amount of any capital allowances.

The rules, as they were, allowed a claim to be made many years after the purchase of the property. HMRC feared that, due to poor recordkeeping and checks by owners, this was leading to allowances being claimed more than once.  As a result they held a consultation in 2011 to discuss proposed changes to rules, and in 2012 the Capital Allowances Act was amended.

The new rules explained

The fixed value agreement

From April 2012 there is a new requirement that where a seller (or one of their predecessors) has previously made a claim for capital allowances on fixtures to a property they must enter into a joint agreement with the purchaser to fix the disposal value of those fixtures.

The agreement has to be made within 2 years of the acquisition date.  If an agreement is not made then the buyer can apply to a Tribunal to fix the disposal value, but if not the allowances are permanently lost.

In very isolated cases the conditions above may be replaced by the past owner instead having to provide (again, within 2 years) a written statement of the disposal value of fixtures, which they had at some time earlier been required to bring into account (e.g. if the business had ceased to trade).

The key message is therefore that if prior claims exist and a purchaser wants the benefit of the capital allowances they will need to ensure that they properly agree this with the seller (and this means making an election, not amending the sale contract).

Where the seller wants to retain the allowances they should elect for a low disposal value, although this was always best practice prior to the change in rules.

What if no prior claims have been made?

If there are no previous claimants then for now the purchaser is free to make a claim in the usual way i.e. by making a just and reasonable apportionment of the price they paid for the property.  At Forbes Dawson we have considerable expertise in this area, and can assist in carrying out an evaluation.

The pooling requirement

After 1 April 2014 there will be an additional hurdle for the purchaser to surpass.  Known as the ‘pooling requirement’ the condition is that if the seller (or one of their predecessors) was entitled to make a claim for capital allowances then they must have ‘pooled’ the allowances (i.e. made a claim) before the sale, otherwise the purchaser’s ability to claim is denied.

Again, this requirement has limited repercussions for a seller – if they wanted the benefit of capital allowances they would have made a claim.

The purchaser, however, has everything to lose.  Previously as part of  their due diligence they simply needed to check whether previous claims had been made.  Now it goes a step further., the emphasis being on whether they were eligible to make a claim.  If they were, a request will need to be made that the former owner makes a claim.

In theory former owners who have no interest in capital allowances should have no issue with making a claim in order to pass the value on to the buyer. Clearly the onus will be on the buyer to pay for any professional costs associated with doing so.

There are time limits which govern when a claim can be made, and therefore early appraisal of the issue is vital.


It is clear that going forward capital allowances will need to be at the forefront of a purchaser’s mind when buying a property, and cannot be left as an afterthought.  The new rules increase the chances of allowances being lost

Forbes Dawson specialise in advising clients and other professional firms in this area, and examples of recent claims we have prepared are shown below.

For a free consultation please call us and we will be pleased to help.




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