What does a Section 198 Election do?
As stated by the CAA 2001, the way in which the seller and buyer agree to the apportionment of the capital allowance for fixtures and fittings in a property being sold is a Section 198 Election. They are a simple way for the seller and buyer to meet the fixed value requirements of the CAA2001 which have been applicable to sellers, whether they have made a capital allowance claim or not since April 2014.
When do Section 198 Elections need to be completed?
S198 Elections must be completed within 2 years of the completion date, or any potential allowances available will most likely be lost forever
Legal Documents
If you are buying or selling a commercial property, it is crucial that we review the prepared legal documents.
These include:
- Contracts & Sales Agreements. We ensure that the right provisions are inserted and tax savings are secured. Legislation changes in 2014 that impacted property transactions are dramatically misunderstood resulting in significant tax savings being lost.
You must include a copy of the election with each person’s tax return for the first period that’s affected by it. This will normally be the period in which the disposal or purchase takes place.
When a partnership, or individual, makes an election, the election must accompany the partnership or individual’s tax return.
Section 198 Elections are common practice for many commercial property transactions.
Need more guidance on Section 198 Election?
A valid section 198 Election should show the following details:
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The amount fixed by the election in relation to the property fixtures:
The amount fixed is the value of capital allowances being transferred from seller to buyer. If the fixed value is £1 for both Main (General) & Integral Features (Special Rate) Pools, this means the buyer is being passed at the minimum value. This may either be because all allowances have been previously claimed by the vendor, or it may be that the vendor wishes to keep all available allowances and retain any available tax savings.
It should also be noted that there will be occasions when the value of the Special Rate pool is not applicable, and this should be noted as such. An example of this can be where the vendor purchased the property prior to 1 April 2008, when the Integral Features legislation came about. In that instance, the vendor would not have been able to claim Integral Features on the purchase of the property, only on any improvements after 1 April 2008. This can sometimes open the door for the buyer to make a claim for Integral Features.
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The name of each person making the election
This simply requires the seller & buyer’s details.
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Enough information to identify the fixtures and the relevant land
This is where the validity of a Section 198 Election hinges. Where the information describing the plant & machinery is simply too vague and does not clearly set out what items have been attributed to the fixed amount (noted above), this invalids the election. An example is: “all Plant & Machinery”.
When completing a Section 198 Election, we attach a list (inventory) listing all the property-embedded fixtures & fittings that the seller has/is able to claim. It’s important to understand that the seller may not have been able to claim items that the buyer now can so its crucial items are clearly set out.
HMRC accepts a degree of aggregation in relation to the items included in the Section 198 election, however, you must state the amount allocated to the fixture when you make the election, and there must be enough detail given so as to make the tax position clear.
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Details of the interest gained by (or the lease granted to) the buyer
An example could be “Freehold”.
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The tax district references of each person making the election
You will need to insert the tax district references of the buyer and seller making the election.
Get in touch
Do you need to complete a Section 198 election or would like a Section 198 reviewing? Our expert team will be able to help guide you through the process.