The new second hand fixtures rules have alerted property buyers to the potential benefit of capital allowances. Whereas in the past it was possible for the well advised seller to retain all the capital allowances on a property by making it a condition of sale that the buyer sign a £1 section 198 election, buyers are becoming increasingly reluctant to give away their entitlement to the allowances without negotiation.
What many people are unaware of is that section 198 elections can be made between connected parties. In theory, therefore, a corporate group can ‘lock in’ the benefit of capital allowances – and avoid difficult negotiations with a buyer – by transferring the property intragroup and making a joint £1 election. If the property is then later sold any negotiation with a buyer with regard to entitlement to allowances is avoided as at that point they are held by another company.
This type of arrangement comes with a health warning, in that anti-avoidance provisions exist that can invalidate a section 198 election if it is deemed to have been undertaken purely to obtain a tax advantage. However, in situations where an intragroup transfer is being carried out for other commercial reasons (e.g. because of a refinancing, or need to ring-fence assets) then a 198 election may offer an effective planning opportunity.
Intragroup transfers can have other tax implications and therefore professional advice should be sought before undertaking this type of planning.
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