Our observations of the Section 198 Election
Why is it needed?
When selling or purchasing a commercial property, the position of capital allowances associated with the fixtures and fittings embedded within the property should be considered and incorporated within the sale or purchase where applicable. If this tax benefit isn’t valued and made legally binding with an S198 Election document, then all those tax savings could be lost. It’s good to plan this at the pre-contract stage rather than negotiating it after the property transaction has been completed.
When taking a proactive approach, this has enabled us to determine if & how CAA2001 Section 198 should be applied to any given transaction. Where is it applicable, it ensures both Seller & Buyer agree and protect their positions before completion. Too often Capital Allowances are an afterthought and picked up after completion. This creates significant difficulties and often results in a tax benefit being lost.
What’s required and is there a deadline?
In the event a Section 198 Election is required, Seller & Buyer have two years from the date of the completion to jointly sign before it can be submitted to HMRC. Not only has the document got to be completed within that time frame, but it also needs to be completed accurately to be valid. HMRC can deem the document as void often resulting in loss of Capital Allowances, so without a correctly structured election, the vendor and the purchaser could be at risk.
Information needed within the document are as follow:
- The property address
- The amount fixed by the election
- Name of each person making the election
- Specific information to identify the embedded fixtures & fittings
- Details of the legal interest gained by the buyer (eg. freehold)
- Tax district references of each party making the election
The majority of Section 198 Elections used are templates. These templates are being applied to all and every transaction. This is where the challenges start. The template approach quite often leads to an unintentional misrepresentation of the situation creating confusion, disruption, and complications. A £1 Section 198 Election is not good for the buyer.
A Section 198 Election that states “all plant & machinery” needs to be challenged as it’s invalid.
UK taxpayers engaged in a qualifying activity can claim capital allowances on property. These include:
- Sole traders and partnerships
- Commercial landlords
- Owners of commercial property
- Furnished holiday property in UKK/EEA
Click on the case study to see an example of the S198 Election in practice
Contact us today for your free initial assessment to establish whether you have correctly secured any tax savings available to you or your clients.