Back to basics: Capital allowances - S 198 elections

Steve Watts and Sean Alexander in our London Tax Group authored “Back to basics: S 198 elections”, published by Tax Journal on 30 April 2021.

Capital Allowances Act (CAA) 2001 s198 elections have been around for decades, but are still often misunderstood, under-utilised and completed incorrectly. The purpose of a s198 election is relatively simple, but hugely important; the lack of a s198 election in certain circumstances could mean no capital allowances are available to a buyer on even the largest of commercial property transactions, and equally could result in a large disposal value to be recognised by the seller, resulting in unintended balancing charges and a clawback of the capital allowances claimed.

The article includes sections on:

• Background: capital allowances disposals
• The original purpose of s198 elections
• The pooling and fixed value requirements
• Content requirements
• Requirement to be signed
• Time limits
• Minimum and maximum value
• Concluding Thoughts

S198 elections are now common practice for most commercial property transactions and are included as an Appendix or Schedule in sale and purchase contracts. S198 elections are often the simplest way for a seller and buyer to meet the stringent fixed value requirements of CAA 2001 s187A which have been fully applicable to all sellers, whether they have made a claim for allowances or not, since April 2014.

All too often, s198 elections are not prepared correctly in line with the legislative content requirements, or are sometimes made when an election is not available. Whilst enquiries into S198 elections are very seldom seen, there is a real risk of submitting and relying on a technically invalid s198 election. A buyer’s claim could be reduced to nil, and HMRC could look to enforce an alternative and perhaps higher disposal value on a seller. We trust that you will find the article informative and interesting.

For more information, or for assistance, please contact Steve Watts or Sean Alexander.