The section 198 election, explained without the jargon

If you have bought or sold commercial property, there is a piece of paper that may quietly have decided whether you can claim capital allowances at all. It is called a section 198 election, and most owners have never heard of it until it costs them. Here is what it is, in plain terms.

What it is

When commercial property changes hands, the buyer and seller can agree a value for the fixtures inside it, the heating, wiring, sanitaryware and so on, and record that agreed value in a short document. That document is a section 198 election. It fixes, for tax purposes, how much of the price is treated as belonging to those fixtures.

Why it matters so much

Because the figure in that election can bind the buyer. If a seller had claimed allowances and the election was signed at a low value, the buyer may be limited to that low value, or shut out altogether. Many buyers sign these at completion without understanding what they are giving away, on the advice of a solicitor who is focused on the conveyancing rather than the tax.

The trap on both sides

• For buyers: an election signed at a low or nil value can quietly destroy a claim you would otherwise have been entitled to make.
• For sellers: failing to deal with the election within the two-year window can trigger a clawback of allowances you already claimed.

Why a proper claim checks this first

This is exactly the kind of thing a firm that builds claims from a phone call will not check, and exactly the kind of thing that gets a claim unwound later. Before we build any claim, we look at the property’s history, including any election made when it was bought, so the claim is sound from the start. It is unglamorous work and it is the work that matters.

If you are buying or selling commercial property, raise capital allowances and the section 198 election before you sign, not after. By the time the ink is dry, your options may already be gone.