Identifying Capital Allowances in Scottish Commercial Real Estate Deals

The importance of identifying potential Capital Allowances claims when dealing with a commercial real estate transaction in Scotland

A key consideration when dealing with a real estate transaction on behalf of a client, that is often overlooked, is in relation to capital allowances. The potential financial and tax related implications mean that the identification of any potential capital allowance claim is a critical consideration for investors, property developers, and businesses alike and one that must identified and negotiated at the earliest stage possible.

Capital Allowances can be transferred from one owner to another during a commercial real estate transaction. This requires careful negotiation between the buyer and seller, ensuring that the allowances are properly identified and agreed upon in the sale contract. The buyer can then benefit from the remaining unclaimed allowances

It is important when dealing with any real estate transaction to seek the appropriate tax advice on behalf of your client to avoid missing out on potential tax savings and ultimately avoiding a claim against you/your firm for negligence if a client could have benefitted from any unclaimed allowances but does not as a result of the existence of capital allowances not being flagged to the client, or the contract/missives not being framed correctly resulting in issues at the claim stage.

Why are capital allowances relevant in commercial real estate transactions?

Capital allowances allow property owners to claim tax deductions on qualifying capital expenditures, such as plant and machinery, which includes heating systems, lifts, and other integral features in a commercial building. This reduces the taxable income of the property owner, potentially leading to substantial tax savings.

There is also Structures and Buildings Allowance to consider when relief can be claimed on the cost of constructing or renovating commercial real estate buildings.

When purchasing a property, understanding the available capital allowances may enhance the property’s value. The availability of these allowances could make the property more attractive to potential buyers, as it can increase the financial return on investment.

Key considerations in a real estate transaction and the importance of getting it right:

When dealing with a commercial real estate transaction, it is important to carry out a full and detailed due diligence on any assets forming part of the transaction to identify which assets qualify for capital allowances. A specialist should be instructed here to review the assets and ensure that all qualifying assets are properly accounted for.

It is fundamentally important that all HMRC rules are complied with when claiming capital allowances and that the correct advice has been taken at the earliest possible stage of negotiations. This includes properly documenting the purchase, allocating value to qualifying assets, and following the correct procedures to claim allowances. The terms of any contract/missives must be framed correctly as these will be looked at when any capital allowance claim is considered. The terms of any contract/missive term should be approved by a tax specialist to avoid any issues post completion of the real estate transaction.

It cannot be emphasised enough how important ii is to properly identify and negotiate any potential capital allowances at the earliest stage of any real estate transaction. If not addressed and the correct tax advice taken, there is a real risk that some capital allowances could be lost. An example of this would be if the seller has already claimed capital allowances on certain assets, the buyer might not be able to claim the full value again unless agreed upon in the contract/missives with the correct wording being used.

In summary, claiming capital allowances when dealing with commercial real estate can provide significant tax benefits, but it requires careful planning and negotiation at the missives/contract stage. Always seek professional tax advice to ensure compliance with the rules and to make the most of the capital allowance opportunities that may be available to avoid the loss of any capital allowance claim.

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The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.