How we helped a client who was acquiring a company with warehouse facilities

When our client acquired a company, the transaction included the company’s trading premises. As part of our due diligence review, we identified a valuable opportunity that could easily have been overlooked.

Prior to the sale, the target company had completed an extension to its facility at a cost of £1.9m. Despite the scale of the investment, no capital allowances claim had been made.

Recognising the potential value of the unclaimed relief, we sought to obtain as much information as possible before the transaction completed. This proved to be crucial. Once an acquisition is finalised, key project information can often be difficult, if not impossible, to retrieve.

Although the documentation available was limited and lacked detail, we were able to build a robust claim by combining the available construction information with photographs and a survey conducted with an individual involved in the project.

As a result, we identified £700,000 of qualifying capital allowances, generating a tax saving of £175,000 for our client.

This outcome demonstrates the significant difference that timely specialist involvement can make during a corporate acquisition.

Alternative scenario – property purchase

Had this transaction involved the direct acquisition of the property rather than a company purchase, early involvement would have been even more critical.

Where capital allowances are not properly considered and agreed with the seller before completion, valuable tax relief can be lost permanently. In this case, the potential £175,000 tax saving could have been at risk.

The capital allowances position in property transactions:

For commercial property transactions, capital allowances must be addressed at the time of purchase, typically through a Capital Allowances Act 2001 Section 198 Election.

In this scenario, the seller had never claimed capital allowances on the extension works, meaning they were unable to enter into a Section 198 Election.

Following changes introduced by the Finance Act 2012, buyers and sellers must satisfy two key requirements:

• The Pooling Requirement
• The Fixed Value Requirement

To meet these conditions, a capital allowances claim would first need to be prepared for the seller. The seller must then pool the qualifying expenditure before both parties agree the value through a CAA 2001 Section 198 Election.

The election must be agreed and submitted to HMRC within two years of the transaction date and reflected in the tax returns of both parties for the relevant period.

Key takeaways

Early specialist advice can protect substantial tax savings during acquisitions, property transactions and construction projects. Businesses should not assume that all available reliefs have been identified or optimised.

• Seek capital allowances advice early when buying or selling commercial property.
• Don’t assume your accountant or solicitor has fully reviewed the capital allowances position.
• Involve specialists during construction and refurbishment projects to improve tax planning, cash flow forecasting and claim robustness.
• Consider the impact of landlord incentives and contributions to works.
• Historic reviews can identify unclaimed entitlement to capital allowances.
• Existing claims may not have been fully optimised and could benefit from further review.

The outcome

Despite limited information and no previous claim having been made, our early involvement enabled the identification of £700,000 of qualifying expenditure, delivering a £175,000 tax saving that may otherwise have been missed. This highlights the importance of considering capital allowances at the earliest possible stage of any corporate or property acquisition.