Contract Property Standard Enquiries (CPSE).

CPSE is the best practice approach to seek information and clarification on a range of matters during the pre-contract negotiation process when buying a care home.

In CPSE.1 (version 4.0) General pre-contract enquiries for all commercial property transactions, capital allowances are dealt with under 33.1 to 33.11. The replies are the starting point for the buyer’s capital allowances pre-acquisition due diligence, however, the replies are often less than adequate.

We regularly see “there are no capital allowances available” or “the capital allowances are not being sold” or “the seller is retaining the right to claim capital allowances” or often “not applicable”.

The entitlement to claim capital allowances rests with the holder of an interest in land and transfers automatically to the new owner when property is sold.

CPSE 33 seeks to establish how the property is held by the seller, whether they have claimed capital allowances and/or entered into any agreement with a prior owner, and whether they are agreeable to meeting the pooling and fixed value requirements.

Replies to due diligence care home acquisition capital allowance enquiries can go unchallenged and accepted at face value, for example:

One would have thought that 33.1 would be the easiest enquiry to answer as all commercial property will be held either on a capital account as a fixed asset or as trading stock. Here are some replies we have seen:

33.1   Do you hold the Property on the capital account as an investor/ owner-occupier, or on a revenue account as a developer/ property trader as part of your trading stock?  Please specify which:

  • No
  • N/A
  • Not applicable for occupiers
  • No enquiry has been made and the Buyer should rely on its own enquiries
  • The Seller does not see the relevance of this section 33 as it is not an industrial building

 The following is a recent example of replies we received to 33.1, 33.2 and 33.3

33.1   Do you hold the Property on capital account as an investor/ owner-occupier, or on revenue account as a developer/ property trader as part of your trading stock?  Please specify which


33.2   Have you claimed capital allowances on plant or machinery fixtures or allocated any expenditure on such fixtures to a capital allowances pool?  If so, please answer the supplementary questions in enquiry 33.9 in respect of that expenditure


33.3   If there is any expenditure on plant and machinery fixtures that you have not pooled, etc.

          No expenditure has been pooled

The reply to 33.1 advises that the property is held as stock, meaning there is no entitlement to claim. However, 33.2 advises that capital allowances have been claimed, then 33.3 says that no expenditure has been pooled, i.e. no claims have been made.  The replies to these first 3 enquires contradict each other entirely. 

Another common reply when asked to list fixtures that have been claimed is to state a washing machine, tumble drier or motor car, clearly not fixtures falling with CAA 2001 s173 and therefore forming part of the Property.

When carrying out pre-acquisition due diligence the replies to CPSE is not the end of investigations, merely the beginning, never accept at face value a reply such as “there are no capital allowances available”.  The statement may well be correct, but you need to know why and not just accept it. 

Pre Care Home Acquisition Due Diligence Case Study

In a recent case study our client had an entitlement to claim capital allowances on the property as the sellers had acquired their care home pre April 2008. We asked for an explanation why there were no allowances available with a negative response! 

The property had been constructed and held by a pension fund who sold to an investor with a s198 joint election at £1.  This election was invalid and of no effect. However, the investor thought they couldn’t claim capital allowances and also that they had to elect at £1 when they sold.

The purchase completed without any election and our client was able to claim capital allowances of £1.4m on the acquisition of a regional office for £4m, thus providing tax relief in the region of £266,000, much of which was available in the first year utilising annual investment allowances. 

Fortunately, our client was well informed enough to refer to a capital allowances specialist before the care home acquisition was completed, and this case demonstrates the many opportunities for Buyers to claim tax relief increasing operational sustainability.

In recent pre acquisition cases we traced the ownership history of the care home since construction and in each case there has been no prior entitlement to claim, consequently our clients will have an unrestricted claim and substantial tax savings in excess of £750,000 in each case, much of it in the first accounting period with the benefit of annual investment allowances.

The replies to CPSE are not the end of the capital allowances due diligence but the beginning. The replies should be drilled down into to ascertain why they are saying what they are and further enquiries made specific to the current transaction, as each transaction will have a different capital allowances position.

Case study demonstrating the potential flow of tax relief on a care home property

The following tables show the potential flow of tax relief for a property acquisition where specialist advice was taken and where it was not taken

For further information, contact Jonathan Jex