Capital Allowances 2015 Welcome to the latest issue of the Savills Capital Allowances Consultancy Newsletter I am pleased to report another good year for our specialist Capital Allowances Consultancy practice in 2014. Both the London and regional businesses were busy providing our services across the UK and performed strongly due to increased demand from both clients and intermediaries. Once again many thanks for your continued business and loyalty. We look forward to maintaining our existing relationships and continuing to provide our services as the market continues to adapt to the recent changes in both capital allowances legislation and working practice. Neil Farquhar National Director Head of Capital Allowances [email protected] 020 7409 8968 33 Margaret Street London W1G 0JD 2015 Seminars Due to the continued interest in our technical capital allowances seminars, our intention this year is to expand them again to both London and our regional offices. Seminars will be held in our London headquarters as well as regionally in: JJ JJ JJ JJ Cardiff Bristol Birmingham Manchester Our aim as ever is to pass on the benefit of our recent experience concisely and we look forward to seeing you for a brief presentation followed by questions over breakfast. Outlook for 2015 The complexities of the new fixtures rules, combined with client awareness of the importance of capital allowances on all commercial property transactions and construction projects, will result in greater demand for our services in 2015. Our national framework is well placed to service all our clients and intermediaries as market conditions continue to improve. Key opportunities in 2015 will be as follows: JJ JJ Greater scrutiny from HMRC / VOA on all capital allowances matters now requires greater clarity when submitting valuations and claims. Managing this risk will be fundamental for both compliance and claim agreement purposes with the UK tax authorities. JJ Capital allowances valuation best practice is now more forensic in nature. Detailed understanding of how a building has changed over time is now critical for correct advice to be given. The need for attention to detail has never been greater. Please select your preferred date by following the link in the email. As anticipated the 2015 Budget was low on capital allowances content. That said there are some changes: JJ Stay of execution on AIA threshold reduction JJ Enterprise Zone changes JJ Expansion to Enhanced Capital Allowances JJ Anti-avoidance measures on both sale and leaseback and connected parties transactions All changes to capital allowances in the 2015 Budget will be covered in the seminar programme. 1 Growing capital allowances compliance requirements for both Buyers and Sellers in all commercial property transactions. Greater focus is now required at due diligence stage because capital allowances are now central to these transactions. JJ Greater expected demand for our services across the UK means that meeting client deadlines, both for tax filing purposes and deal purposes will be more challenging than ever. JJ Our intermediary referral network continues to grow and this will expand in 2015, particularly within the legal profession where our specialist input is now an integral part of the transaction due diligence process. JJ Increased awareness and the nature of the legislative changes has inevitably led to legal disputes. The RICS approached Savills last year to act as their Expert Witness in this specialist field and we see this role increasing in 2015. Hopefully these points together with the below gives a snapshot of both the opportunities and challenges within our specialist practice in 2015. I look forward to seeing you at one for our seminars and catching up over a coffee in due course! Contributor – Neil Farquhar, Head of Department Capital Allowances Practice – The New Normal As we approach the anniversary of the full implementation of the new fixtures rules back in April 2014, it is worthwhile to take stock of the resultant changes in practice we have observed over the past year. Whilst more people say they have heard about the new rules, there is still a lack of understanding of what they entail and how they apply. We want to work closer with clients, advisors and intermediaries to bridge this gap. Some common misconceptions persist, despite our continued efforts to dispel them: JJ The new rules do not remove the ability to retrospectively value unclaimed allowances on historic property expenditure. JJ In most cases, properties bought from developer traders or those outside the charge to tax are not caught by the new rules. Purchasers can inadvertently lose out, as our recent experience in Bristol demonstrates (see South West Region Update). In terms of practice, key observations include: JJ Continued prevalence of ‘pay-to-pool’ arrangements – We are engaged by purchasers to value all unclaimed allowances on the seller’s behalf in order to meet the pooling and fixed value requirements. JJ Shift in Revenue practice – The new normal appears to be that capital allowances valuations will be enquired into and scrutinised in greater detail by both HMRC and VOA. It is evident from the changes that we are in a new era of capital allowances practice. This year’s seminar programme seeks to address the issues and ensure attendees are sufficiently informed to deal with them. Contributor – Terence Tan, London & South East Region Capital Allowances 2015 Eastern Region Business Update The eastern regional business has enjoyed a fifth year of continued success with an increasing level of instructions from both new and existing clients. We anticipate another promising year ahead as the localised economic outlook continues to improve and market knowledge of how we can add real value grows. Historically, the Eastern business has enjoyed particular success in the Care Home sector, although this year saw an increased demand for our services within the industrial and office property sectors. This is due to improved investment conditions and increasing awareness of the new fixtures regime - capital allowances are an integral part of every commercial property transaction which can no longer be ignored. A particular success story for the Eastern business last year involved valuing one of the regions foremost entertainment venues, comprising 7 function rooms, 5 bars, 2 restaurants and a large bowling centre. Purchased several years ago and subject to subsequent refurbishment and fit-out works, the initial view of the client and their accountant was that all possible capital allowances had already been claimed. Despite the challenge of scarcity of information, our highly forensic approach meant that we were able to utilise alternative sources to establish the basis for a comprehensive capital allowances valuation. We identified total additional capital allowances of approximately £1.6m on both the original purchase and subsequent capital expenditure, resulting in additional tax savings available to the client over a number of years, over and above what had already been claimed. Contributor – Kamala Singh, Eastern Region RICS preferred Expert Witness in the field of Capital Allowances Savills is now appointed as the RICS preferred capital allowances expert witness. Our latest case involved a capital allowances advisor who had prepared poor quality capital allowances valuations resulting in a fee dispute. They took the client to court under breach of contract when he refused to pay the fees. Savills were appointed as the capital allowances expert to review and comment on the valuations completed and the general work carried out. With the advent of the new capital allowances fixtures regime, advisors are increasingly seeking capital allowances advice from self-proclaimed ‘capital allowances specialists’. However, the pitfalls of outsourcing to poor quality advisors are evident. Where capital allowances are inadequately valued, normally on the incorrect technical basis, legal actions may arise between a client and their advisor or intermediary. Where capital allowances are overvalued, there is a risk of solicitors being sued. Where capital allowances are undervalued by the seller, the buyer can take them to tribunal. This recent dispute highlights the need for comprehensive advice at the right time! Contributor – Neil Farquhar, Head of Department Case Study – BUYER BEWARE! In 2014 Savills Capital Allowances was instructed on a £1.6 billion acquisition of 11 properties of the More London portfolio by the real estate arm of the State of Kuwait. The work undertaken involved the negotiation and preparation of capital allowances contract clauses and capital allowances elections to ensure that the remaining capital allowances were preserved for the Buyer’s use in light of the new fixtures rules. Savills were able to identify many millions of unclaimed capital allowances, which the Buyer was unaware of prior to our involvement and comprehensive due diligence. Contributor – Kamala Singh, London & South East Region 2 Capital Allowances 2015 South West Region Update Markets continue to see positive growth in commercial sectors both in town and out of town areas within the South West, with a demand for both existing stock as well as new developments. Within the last 12 months, we have seen both our local South West and national clients looking to invest within the area due to increasing local demand for quality property yielding good returns. Whilst the markets in Bristol and Cardiff remain very strong, our South West team has prepared valuations for a wide range of clients including hotels, offices, high street retail, pubs and bars and business centres throughout Cornwall, Devon and Somerset, including in Newquay, Torbay, Swindon and Taunton. We are increasingly meeting new clients who, due to poor advice, have unfortunately missed out on significant amounts of capital allowances on their property investments. In some cases, they have missed out on the opportunity altogether. One project of note was with an existing client who acquired a well-rented office located in central Bristol and was advised by both his lawyer and agent no capital allowances were available. Following a thorough review by our Bristol team and a detailed site inspection, we identified unclaimed integral features, reversionary tenant fixtures and additional plant and machinery assets outside of an inherited capital allowances election. In total we identified more than £500,000 worth of capital allowances, saving the client more than £100,000 of tax on rental profits. Against the backdrop of the new fixtures rules and the level of scrutiny that capital allowances claims are now looked at, a specialist must be appointed who has both good local knowledge and an excellent track record with HMRC / VOA in order to achieve the best level of recovery. If you are buying, selling or improving your property, I would recommend getting in touch before the transactions occur to ensure the capital allowances are correctly dealt with and the position is agreed during due diligence. Contributor – Alex Kramarenko, South West Region Our Intermediary Referral Network 2014 saw the business referred from third party accountants, IFA’s and tax advisors go from strength to strength. An influx of new accounting firms and financial advisors have introduced their clients to Savills. As discussed above the new fixtures rules have pushed capital allowances up the agenda. Many general accountants and tax advisors recognise the specialist nature of the capital allowances work we undertake and are keen to secure the maximum tax relief possible for their clients. In 2015 Savills Capital Allowances Consultancy is expanding its support to solicitors as the practicalities of the new fixtures rules develop. We have been invited by the Solicitors Group to present at a series of CPD sessions around the country; we have already been to Birmingham in March 2015 and are due to present at Gateshead (29 April), Southampton (21 May) and Bristol (3 June). 3 This is because we are noticing a greater concern amongst professional advisors with regards to protecting the capital allowances they have advised upon and avoiding being sued in the event of a failure to claim. A recent example was where an administrator contacted us as they were about to exchange contracts on a £12m hotel disposal. Savills Capital Allowances Consultancy were able to amend the sale and purchase agreement to compel the seller to ‘pool’ the allowances and transfer them to the buyer. This resulted in circa £9m of allowances being available to the buyer that otherwise would have been lost. Contributor – Michael Brownsdon, London & South East Region Capital Allowances 2015 Capital Allowances Consultancy - Our National Framework London & South East Neil Farquhar National Director Head of Department [email protected] +44 (0) 20 7409 8968 Terence Tan Director [email protected] +44 (0) 20 7409 8904 Michael Brownsdon Associate Director [email protected] +44 (0) 20 7409 9952 Kamala Singh Associate [email protected] +44 (0) 20 7877 4576 London & South West Leeds Neil Farquhar Manchester National Director Head of Department [email protected] +44 (0) 20 7409 8968 Birmingham Eastern Cambridge Kamala Singh Associate [email protected] +44 (0) 20 7877 4576 Cardiff Midlands & North Bristol London Southampton Nav Lalli Associate [email protected] +44 (0) 121 634 8457 West End Office 33 Margaret Street London W1G 0JD City Office 25 Finsbury Circus London EC2M 7EE Cambridge Office Unex House 132-134 Hills Road Cambridge CB2 8PA Bristol Office Embassy House Queens Avenue Bristol BS8 1SB Cardiff Office 12 Windsor Place Cardiff CF10 3BY Birmingham Office Innovation Court 121 Edmund Street Birmingham B3 BHJ Manchester Office Belvedere 12 Booth Street Manchester M2 4AW Leeds Office City Point 29 King Street Leeds LS1 2HL 4
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