Completing CPSE enquiries – why it is important for solicitors

Executive summary

Capital allowances can deliver significant tax savings in commercial property transactions, but they are often overlooked during conveyancing. Solicitors play a pivotal role in ensuring allowances are preserved and correctly documented and transferred between parties. Failure to address this can result in permanent loss of relief and potential professional negligence claims. This insight explains why solicitors need to consider capital allowances, the importance of Commercial Property Standard Enquiries (CPSE) responses, and lessons from case law such as Hurlingham Estates Ltd v Wilde & Partners.

Background

Capital allowances provide tax relief on qualifying expenditure for plant and machinery embedded within commercial properties. Since legislative changes in 2014 introduced mandatory pooling and fixed value requirements, the responsibility for addressing capital allowances during property transactions has shifted heavily onto solicitors. Whilst the rules for transferring the benefit of contribution allowances and structures and buildings allowances are pre-determined, plant and machinery allowances do not automatically transfer at a given value with the property; they require proactive steps, including accurate CPSE responses and Section 198 elections.

The issue arises because many solicitors are not capital allowances specialists, yet clients expect them to manage all aspects of the transaction. If allowances are ignored or incorrectly handled, the buyer may lose entitlement forever, and the solicitor could face litigation. This risk is amplified by the complexity of the rules and the reliance on CPSE responses, which often contain incomplete or inaccurate information.

Technical context

Capital allowances are governed by the Capital Allowances Act 2001. For property transactions, the key provisions relate to plant and machinery fixtures and the requirement for a Section 198 election to fix the disposal and acquisition value. HMRC guidance stresses that without a valid election, allowances cannot be claimed by the purchaser even if they paid for the fixtures as part of the purchase price.

Case law reinforces the solicitor’s duty of care. In Hurlingham Estates Ltd v Wilde & Partners, the court held that solicitors acting in property transactions must either advise on tax implications or ensure clients obtain specialist advice. Failure to do so constituted negligence, even where the solicitor claimed tax advice was outside their remit. The judgment highlights that solicitors cannot simply ignore potential tax liabilities or reliefs, they must flag them and take steps to protect the client’s position.

CPSE forms, particularly Section 32 (33 in CPSE version 14.1), are central to this process. They require disclosure of the property’s capital allowances history and any claims made. However, responses are often inaccurate or incomplete, resulting in legally unworkable or uncertain positions. It is, therefore, essential that any inaccuracies are identified, and any incomplete answers followed up with the vendor. For example, a “not applicable” answer without reasoning is not acceptable and should never be accepted.

The impact

The consequences of overlooking capital allowances can be severe. Sellers may lose thousands of pounds in tax relief if they are unable to secure a s.198 election agreement with their buyers, potentially resulting in having to repay the benefit of the allowances enjoyed during their ownership. Buyers may lose out if unrestricted historic expenditure isn’t properly identified, meaning they are not able to make a claim that they would otherwise be fully justified in making. For solicitors, the risk is professional negligence claims, reputational damage, and client dissatisfaction. The key lessons are clear: capital allowances must be addressed early in the transaction, CPSE responses should be scrutinised, and Section 198 elections must be correctly drafted and submitted within the statutory timeframe.

Clients need to consider the capital allowances position early in the process so that headline agreements can be reflected in the heads of terms. If unsure about the accuracy or implications of any CPSE response, solicitors should engage specialists to advise on and to quantify potential claims and ensure contractual provisions reflect the agreed position. Solicitors should, therefore, adopt a proactive approach, making capital allowances a standard part of their due diligence process.

How we can help

At TFI Group, we work alongside solicitors to manage the capital allowances process from start to finish. Our services include reviewing CPSE responses, identifying qualifying expenditure, drafting Section 198 elections, and advising on contractual wording to protect entitlement. By involving us early, solicitors can reduce risk, safeguard client interests, and unlock valuable tax savings.

Author: Sam Moore