Capital allowances on a property transaction
When a commercial building changes hands, the allowances inside it are settled at the point of sale. Get that moment right and the relief is protected. Miss it and it can be gone for good.
The sale is where the allowances are settled
Every commercial building has plant and machinery built into its fabric, the wiring and lighting, the heating and hot water, the air conditioning, the sanitaryware. Those fixtures qualify for capital allowances under the Capital Allowances Act 2001. When the property is sold, the law expects the buyer and seller to deal with the value of those fixtures then and there, and it gives them a specific tool to do it.
That tool is a section 198 election. It is a short document, and it carries more weight than almost anything else in the transaction as far as the tax relief is concerned.
The election that fixes the fixtures value
A section 198 election lets the buyer and seller agree, in writing, how much of the sale price is treated as belonging to the fixtures. Both sides sign it, and that agreed figure is what carries forward for tax. Where the interest passes by the grant of a lease rather than an outright sale, the parallel election under section 199 does the same job.
It binds the buyer
The figure in the election is the figure the buyer inherits. Sign it at a low or nil value and the buyer may be limited to that value, or shut out of a claim altogether.
It has a deadline
An election must be made within two years of the transaction completing. Once that window closes, the chance to fix a fair value on paper closes with it.
It needs the groundwork
Since April 2014 the seller generally has to have pooled the expenditure for the buyer to claim on it. If nobody checked, the relief can be lost before the election is even drafted.
The blank box that gives it away
The Commercial Property Standard Enquiries are the questions a buyer's solicitor sends the seller before completion. The main form, CPSE.1, has a whole section on capital allowances and plant and machinery. It is there because this matters. And it routinely comes back blank, or answered "nil", or marked "refer to accountant".
Each of those is a warning light. A blank reply means nobody has looked. A nil reply may be handing away relief that was there to claim. "Refer to accountant" usually means it never got referred to anyone. When you see one of those answers, the allowances are not being protected. They are being left to chance.
Both sides have something to lose
This is not a buyer's problem or a seller's problem. It is both.
- For the buyer, an election signed at a low or nil value can quietly wipe out a claim worth a real sum, on relief you had every right to. By the time you find out, the two years may be spent.
- For the seller, ignoring the election can trigger a clawback of allowances you already claimed and banked, so a settled position reopens when you least expect it.
- For both, dealing with it properly at the point of sale means the number is agreed, the relief is protected, and nobody is left carrying a risk they did not see.
None of this is a reason to panic. It is a reason to raise capital allowances before the contract is signed, not after, and to have someone in the room who understands the fixtures rules rather than meeting them for the first time at completion.
We check the position before the ink dries
We review the capital allowances position on a live transaction and value the qualifying fixtures, so the figure behind a section 198 election is a properly worked one rather than a guess. The election itself is for the solicitors to draw up and the accountant to weigh. We deliver a fully sourced report; an independent, qualified accountant reviews it and decides on any claim. If you are buying or selling commercial property, bring us in before you sign, while the options are still open.
On a live transaction?
Tell us about the property and where the sale has got to. We will look at the capital allowances position and set out what we find, in time for you and your advisers to act on it before completion.