Property Acquisitions
The taxpayer incurring expenditure on second-hand assets, whether actual buildings or items of plant included within those buildings, will be able to claim allowances under the same general rules as if he were acquiring the assets brand new. There are, however, certain additional rules to be dealt with, and in many cases the amount qualifying for allowances will be restricted.
A fundamental principle of the tax system is that no more than one person can claim capital allowances on any qualifying asset at any one time. The result is that detailed checks must be made on all property acquisitions to determine their tax history. The Inland Revenue is entitled to reject a capital allowances claim that is submitted without the proper research. Therefore, it is imperative that all sale agreements contain the necessary contract clauses and pre-contract questionnaires. A further point to note is that there are specific restrictive provisions for sales between connected persons along with sale and leaseback arrangements.
Once the restrictions and types of claim have been established (e.g. plant and machinery allowances and hotel allowances) an apportionment of the purchase price is normally carried out by using an agreed formula with the Valuation Office. The object of this is to properly allocate the sale proceeds attributable to the various component parts of the transaction (e.g. land, building, goodwill and plant and machinery).
Note: Contract allocations are not binding for tax purposes.
