The heating for the hotel was provided by means of a biomass boiler which was purchased a few years before for a sum in excess of £150,000. The biomass boiler was purchased by the trading company (not by the owners of the building).
At settlement of the transaction it was essential that the trading company and the purchasers entered into a Capital Allowances Election in relation to this biomass boiler in accordance with Section 198 of the Capital Allowances Act 2001.
The purchasers and the sellers/trading company had to agree a value assessed on the biomass boiler which had to be apportioned to Plant and Machinery fixtures in the sellers' main pool for the purposes of the election.
Whilst the biomass boiler, for property law purposes, was a fixture of the building and therefore "owned" by the sellers - for tax purposes it was treated differently.
The relevant interest for capital allowances in the biomass boiler is the interest the trading company had in the boiler. They incurred capital expenditure on a fixture under their interest and had claimed capital allowances - so they had prior right to the allowances under the Capital Allowances Act 2001. It was necessary to ensure that a capital sum was paid for the biomass unit to the trading company so that they were able to bring in a disposable value into their accounts and tax return for the boiler and by means of a Section 198 election, it was possible to transfer the agreed capital allowances value to the purchaser.
The sale contract provided that there was an apportionment of the agreed sum for the acquisition of the biomass boiler. The purchasers paid Land and Buildings Transaction Tax on the value attributable to the boiler (as it was included in the property value paid). The purchasers acquired the interest of the seller and the trading company in and to the biomass boiler and entered into a joint Capital Allowances Election with the trading company .
It is always prudent for the parties to property transactions involving any significant items of plant and machinery to obtain specialist tax advice in relation to the Capital Allowances - as the purchasers did in this case.