Understanding Capital Allowances and the Law when Selling your Bed & Breakfast
A Bed & Breakfast business allows the proprietor to live in their property while utilising a part of it to provide short term accommodation at a cost. This means that a significant portion of the property will be utilised to help the business run.
This portion of the property may therefore be used to claim Capital Allowances against the cost of purchasing, building, or refurbishing the property and is explored in depth here if you wish to learn more.
But what happens if you are looking to sell your Bed & Breakfast?
If you have made a claim for Capital Allowances on your Bed & Breakfast, when you sell your property / business the subsequent owner(s) may also make a claim on any previously unclaimed allowances, or on additional work they conduct on the property.
Any claim made for Capital Allowances purchased after 2014 are subject to new laws whereby rather than being based on the purchase price of the property, the value of Capital Allowances are based on the previously identified Capital Allowance amount. Therefore, if you are looking to sell your property and haven’t issued a Capital Allowance report on the property, you may prevent any subsequent owners of the property doing so themselves, which could come back on you.
Capital Allowances and Selling your Bed & Breakfast
Commercial Properties Tax therefore highly recommend that if you are looking to sell your Bed & Breakfast in the near future that you should speak with your accountant and/or solicitor to look into the Capital Allowances Act 2001, Section 198. In our experience, upon review of such their first action is to recommend you speak with a Capital Allowance Specialist to ensure you meet your legal obligations.
But why would they make that recommendation?
Any buyer that purchases your property that wishes to make their own Capital Allowance claim would need to do so at the time of purchase or within two years of such if you have not already identified the potential Capital Allowances on the property.
If they fail to take such an action within the two years, then they may find themselves unable to do so at all, for which they could seek legal action.
To ensure a buyer can take the above action once they purchase your Bed & Breakfast, as the seller you must either make a claim for Capital Allowances yourself, or notify HMRC about your entitlement towards such.
Both of these options require you instructing a Capital Allowance specialist to produce a report on your property.
Understanding your Options
Commercial Properties Tax recommend that you consider taking one of the below options when selling your Bed & Breakfast:
|Make a Claim for Capital Allowances||Make a Claim for Capital Allowances and then Crystallise them||Transfer the Value of Capital Allowances to the Buyer|
|Treat your property as you would if you were not selling it.
Put in a claim for Capital Allowances, use the amount for a tax refund if you are owed one, and then utilise it for tax relief going forward until you sell.
Once you sell however, you will no longer be able to utilise the Capital Allowances for tax benefits.
|Once you sell your property, rather than losing your rights to use Capital Allowances for tax relief, you crystallise them.
When the property is sold there will be an amount of plant & machinery set within the sale price. Conducting a Capital Allowance report allows you to accurately calculate the value of the plant & machinery that may be listed.
However, you can elect to set the plant & machine value to be anywhere from £2 up to the full Capital Allowances identified. So if you list the plant & machinery value at just £2, then the remaining Capital Allowances you identified in the property may then be claimed by you as tax relief for your current tax year to offset against your profits.
|Once you conduct a Capital Allowance report on your property you don’t utilise them yourself. Instead you offer them to buyer of the property as an incentive to purchase.
This provides the buyer with instant tax relief upon purchase allowing you considerable room in negotiation, while also making your property more desirable as other Bed & Breakfasts are unlikely to be making the same tax saving offering.
Many buyers will even offer to fund the Capital Allowance report to obtain the benefit.
What to do now?
If you are selling your Bed & Breakfast then get in contact with Commercial Properties Tax for a no obligation Free Audit / Review and see how we can help you meet take the best action for your circumstances.