Need more guidance on Section 198 Election?
Section 198 Elections must be completed within 2 years of the completion date. If you are buying or selling a commercial property, it is crucial we review prepared legal documents i.e. Contracts & Sales Agreements to ensure 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 makes an election, the election must accompany the partnership tax return. You must state the amount allocated to the fixture when you make the election.
Capital Allowances can be lost forever without, or an invalid Section 198 Election.
A valid Section 198 Election must contain
The amount fixed by the election
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 Pools (if both apply), this means the buyer is being passed the minimum value and may not agree to receiving no tax savings for the property embedded plant & machinery the buyer is acquiring.
The name of each person making the election
This simply requires the seller & buyers details.
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 being: “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.
Details of the interest gained by (or the lease granted to) the buyer
An example could be “Freehold”.
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
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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.