When constructing an agricultural building, or making alterations to such a building, capital allowances (CAs) can be available as ‘plant machinery’ under the integral features rules, and the remaining ‘shell’ of the building under structures and buildings allowances (SBAs).
Expenditure which qualifies as integral features, such as heating, electrics, ventilation and water systems, may obtain an immediate 100% tax deduction if they fall within the AIA limit set out in the article above. Any amount not qualifying for AIA will receive a tax deduction at 8% per annum on the reducing balance basis.
Expenditure qualifying for SBA does not qualify for AIA but can receive a straight line tax deduction over a period of 33 1/3 years.
When buying a ‘used’ building, the position regarding available CAs needs to be confirmed during the purchase process.
Section 198 election
In order for the purchaser to be able to claim CAs on items included in the building such as heating, electrics, ventilation and water systems, an amount allocated to these items must be agreed with the vendor and what is known as a Section 198 election made. If no amount is agreed, no CAs claim can be made on items included in the building by the purchaser.
SBA statement
Similarly, if SBAs have already been claimed on a used building, a statement will need to be provided by the vendor to the purchaser confirming the amount of expenditure available to be claimed by the purchaser going forward. Without such a statement, no SBA claim can be made on previous expenditure
During the purchase process it may become clear that available CAs and SBAs on the building have not previously been claimed. In this instance, it may be possible for the purchaser and vendor to work together resulting in the vendor making a valid claim. This can then allow the purchaser to use the available CAs going forward
Furnished holiday lettings
Integral features CAs are available on expenditure on items included in the property such as plumbing, electrics and heating.
If a property is already used as a furnished holiday let at the time of purchase, a Section 198 election is required to confirm the amount the purchaser can claim CAs on going forward.
Where the property being acquired has previously only been used as a private residence, it may be possible for the purchaser to make a CA claim based on a proportion of the purchase price relating to such items as plumbing, electrics and heating.
Agricultural structures on which plant machinery capital allowances may be claimed
Readers may remember our article ‘Capital allowances: what is a silo?’ in our Summer 2019 Focus. This article referred to the tax case of May and another (TC6929), where the taxpayer successfully argued that the entire cost of constructing a building qualified for CAs as plant and machinery.
Earlier this year there was another successful win for the taxpayer on a potato storage facility. JRO Griffiths Ltd v HMRC (TC8203). The company built a specialised storage facility which used external air at ambient temperature with no mechanical refrigeration and claimed CAs on the entire cost as plant and machinery. HMRC refused the claim, but the First Tier Tribunal decided the facility was ‘plant’ both as a silo and a coldstore.
Both cases are important wins for farming businesses and proves it is worth exploring the options when embarking on expenditure on new buildings for very specific purposes.
If you have any questions on capital allowances, please contact Peter Griffiths at peter.griffiths@hazlewoods.co.uk or your usual Hazlewoods contact.