Buying a Guest House? – Don’t miss out on hidden tax allowances

The Guest House and B & B sector is characterised by a significant turnover in business ownership.

Business values transferred on change of ownership can be significant and, as ever, there is potential for loss of value and tax traps on all sides for the unwary.   This is therefore a situation where in reaching a transaction value, there is need for close liaison between:

1. The purchaser
2. The seller
3. Legal advisors
4. Tax advisors

When a Guest House business comes to be sold to a new buyer, the seller may or may not have claimed capital allowances on the “hidden fixtures” within the property.  These fixtures are not the moveables, which would be subject to a separate valuation, but typically will be electrical and water systems, plumbing, heating and lighting that are attached to the fabric of the building.  The layman cannot readily attribute values that HMRC would accept, hence the need for professional assistance in determining values on which future additional tax claims can be based.

At the time of conveyance, solicitors tend not to have access to the relevant tax values and because it is a tax issue, some solicitors may see it as beyond the remit of the conveyance. This can have “car crash” consequences from a tax perspective as there is a strict 2-year time limit from the date of conveyance to submitting the required tax election.  A further condition is that all assets included in the tax election have to be included in the seller’s capital allowances pool.

In practice, reaching agreement needs to be determined at time of conveyance as the seller is likely to be reluctant to be helpful after the sale has been completed, unless they have a contractual obligation to co-operate.  However, if nothing is done within the 2-year window, HMRC wins to the potential detriment of the other parties.

It is therefore in all parties’ interests to bring your accountant on-board so that the valuation of “hidden fixtures” is dealt with at the time and made effective by formally listing the assets subject to the claim.

If you are considering the purchase or sale of a Guest House and would like to discuss this in more detail, please do not hesitate to get in touch.