Why Section 198 Elections Matter in Second-Hand Property Sales

What Is a Section 198 Election?

A Section 198 Election is a legal agreement made between the buyer and seller of a second-hand commercial property. It sets the value of fixed plant and machinery included in the sale, such as:

• Air conditioning units
• Lighting systems
• Fitted kitchens
• Heating and ventilation systems
• Lifts and escalators

These assets may qualify for capital allowances, a form of tax relief that reduces your taxable profits.

Why It Exists

Without this agreement, the value of those assets could be treated as £0 in the eyes of HMRC, meaning the buyer can’t claim anything. It’s essentially the tax equivalent of leaving money on the table.

Why Section 198 Elections Are Critical

Let’s say you’re buying a commercial building. The seller hasn’t claimed capital allowances, and you assume you can.

But if a Section 198 Election isn’t agreed and submitted;

• HMRC may disallow your claim
• You could lose out on thousands in tax savings
• The embedded fixtures may be treated as if they were sold for nothing.

In real terms, buyers have missed out on over £50,000 in allowances because of missed or incorrectly filed elections.

Since the rules changed in 2014, you must “fix” the value of second-hand assets during the sale process, using either:

• Section 198 Election (for freehold sales)
• Section 199 Election (for leasehold transfers)

How Does a Section 198 Election Work?

The election must be:

1. Jointly agreed and signed by both parties
2. Submitted to HMRC within two years of the transaction completion
3. Specific about the asset value being passed between parties

It locks in the amount the buyer can claim as capital allowances. Without it, that amount defaults to zero.

Before You Sign the Contract

Think of a Section 198 Election as a small hinge that swings a big door, a simple agreement that protects years of potential tax relief.

• Don’t leave it to the solicitors as a last-minute clause.
• Raise it early with your accountant or advisor and include it in the Heads of Terms or purchase agreement.

Frequently Asked Questions

What’s the deadline for submitting a Section 198 Election?

It must be filed within two years of the property sale/purchase completion date.

Do all second-hand property sales require this?

Only if capital allowances are involved. If there’s plant and machinery embedded in the property (most commercial buildings have them), then yes.

What happens if the seller has already claimed capital allowances

You’ll need to agree on a residual value. Even if claimed, the assets must be accounted for via an election.

Can it be done after completion?

Yes, but both parties must still agree, and the two-year deadline remains.

Don’t Miss Out on Thousands in Tax Relief

If you’re buying or selling a commercial building, flag the Section 198 Election early. It’s low-effort paperwork with high-value returns, but only if you act in time.

• View our Guide: “Selling a commercial property checklist”
• Or Book a Free Consultation to secure your capital allowances before it’s too late.