You will need to claim capital allowances if you are to enjoy the benefit of them. It is our experience that not all GP practices promptly claim their full value. This can be a deliberate policy or simply an oversight. Left unclaimed, most capital allowances simply carry forward into subsequent years.
Some of the largest (and most commonly unclaimed) capital allowances are associated with premises improvements. In the event a property owning partner is bought out, the unclaimed capital allowances would normally remain with the partnership for the benefit of the remaining partners. This could result in a new partner using any unclaimed capital allowance to reduce their own tax liability, even though it was an outgoing partner who participated in the original investment giving rise to the capital allowance.
As the value of capital allowances can be significant, this is a potential source of conflict amongst partners. In this blog, we share some common scenarios together with some pros and cons so you can agree the right decision for your practice.
Who should benefit from them?
Usually, the existence of unclaimed capital allowances will be reflected in the price paid by a buyer. Unclaimed capital allowances increase the inherent value in a commercial building, so would increase the price in a ‘normal’ transaction, however they are often not taken into consideration in GP surgery valuations – even if the partners are aware that unclaimed allowances exist.
What can you do?
We are aware of occasions when partners discover very large bought forward unclaimed capital allowances. A nice windfall for the current partners perhaps, but any former partners would wish they had researched the position before retiring.
- Don’t delay…
The common business practice is to claim capital allowances as quickly possible. This reduces the risk of a problem arising as well as reducing the partners’ tax bills.
- Document your position…
If you decide to leave significant amounts of capital allowances unclaimed, or you retire before you have claimed all of the allowances due, you need to agree with your partners how to deal with this. If the surgery building is a partnership asset, you should also have on record that it is only the owning partners that benefit from any capital allowances.
- Consider the accounts.
One option is to record the unclaimed allowances as an asset in the partnership accounts, or at least to do this when creating retirement accounts. Your accountant may be willing to do this if he considers the allowances ‘realisable’.
- Be consistent…
Should you wish to allocate capital allowances to a retiring partner before they have been claimed in full, you will also have to agree this between the partners. In this case, you would agree that the unclaimed allowances are an asset of the partnership and that they should be valued appropriately when the retirement accounts are drawn up. You should however ensure that you are consistent over time in the way that you do this.
This may appear an obscure technical matter, but large sums can be at stake. If the ownership of these is left unclear, it can be a recipe for a partnership dispute. Practices would be well advised to ensure they understand whether they have significant unclaimed capital allowances, and if so to agree how they wish to deal with them. This should then be cross checked with the Partnership Agreement to ensure it is consistent.
If you have any questions specifically about capital allowances, then you should contact your accountant in the first instance. For assistance in documenting a relevant policy or for updating your partnership deed to deal with the position, please contact Daphne Robertson on 01483 511555 [email protected]