Capital Allowances Act: Election under Section 198

In a separate article, we noted that sale of an industrial or agricultural building or hotel has tax implications. We found if the seller and buyer agrees to fix the price of plant and machinery forming part of the property at a higher value, the buyer benefits by being able to claim higher capital allowances and save taxes. The seller might be able to negotiate a higher selling price for the property as a whole as a result.

We also mentioned in that article that the terms as agreed above are recorded in an Election Notice under section 198 of the Capital Allowances Act 2001. In this article, we look at this section.

Section 198 says that the buyer and seller can agree upon the amount that is to be treated as expenditure incurred for the provision of the fixtures of the building that are entitled to capital allowances. This amount, however, cannot exceed:
• The amount that was treated as expenditure so incurred in the hands of the seller and
• The actual sales price

Section 198 Election Notice Contents

The notice under section 198 must include the following details:
• Names and tax references of buyer and seller
• Address of the property covered by the transaction
• Sale contract date and amount
• The value agreed to be treated as plant and machinery
• Description of the plant and machined valued thus

Though there is no statutory requirement that the Notice must be signed by both or either of the parties, it is best that both parties sign it. Otherwise, questions from the Revenue department might have to be answered by the parties.

It might be noted by listing the items of plant and machinery, it is possible that the seller might come to notice that allowable capital allowances have not been claimed on certain additions and alterations. The seller can either claim these or pass the eligibility to the buyer, both of which are likely to benefit the person.

Though outlined in simple language above, the relevant rules are more than a little complex.

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