S198 Elections – Capital Allowances Act 2001 S.198 Election on Property Transactions for Accountants Guide.


Clients need to consider Capital Allowances prior to the exchange of contract on property transactions. This has been highlighted by the widespread usage of standard pre-contract enquiries and as such has resulted in an increased number of pre-contract questions on Capital Allowances being asked.

S198 Elections – Section 198 of the Capital Allowances Act 2001 is now applied more often where clients wish to limit the clawback (repayment) of relief already given to the vendor of the property. However, in some instances lawyers may attempt to apply the rules without fully understanding their purpose or application.

Over the past few months, we have seen several instances of sales contracts which have included incorrect elections; this could have resulted in a significant loss of tax relief if it had gone unnoticed. S198 Elections

Additionally we have seen some situations where election only covers some of the plant fixtures. A separate and subsequent claim on fixtures covered by the election has been found following further investigation. S198 Elections

It is essential to remain diligent and maintain a full understanding of the different issues affecting both the purchaser and seller in order to ensure your client’s are protected prior to exchange. To help you, a selection of the most important points have been illustrated below:

S198 Elections – Section 198 Essential Information

S198 Elections – Relevant statute is the Capital Allowance Act 2001, S. 196, 198, 200 and 201.

S198 Elections – Elections must include the information required by S.201 otherwise they are technically invalid and can be challenged.

S198 Elections – They are usually more of an advantage to the seller than to the purchaser because they are trying to limit a clawback of allowances already given.

S198 Elections – In an ideal situation they should be addressed prior to exchange to ensure the opportunity to negotiate the value is not lost.

S198 Elections – An election must be made within two years of the transaction (purchase). Just filling in the form of election is not sufficient, it must be signed and submitted in that timeframe.

S198 Elections – The value elected must be between the amount of the original capital allowances claimed or the sale price paid for the property.

S198 Elections – It is not necessary for the purchaser to be a taxpayer to enter into an election, however, they must have a UK tax reference according to HMRC.

S198 Elections – Elected values may be as low as £2 (£1 for each pool).

S198 Elections – When should a Section 198 Election be used?

The benefit of an election to a seller is they can limit the claw-back of the tax relief already claimed, in whole or in part. A seller can limit their balancing adjustment by jointly electing with the purchaser to fix the disposal value of the fixtures (an election can only be made on fixtures and a previous claim by the seller must have been made already). This value can be fixed anywhere between the original claim value to, actual or notional tax written down value of the allowances, or as little as £2 (£1 main pool and £1 special rate pool). S198 Elections

Valid elections can only be made once a disposal value for a fixture is required by S.196 (1) to be brought into account. This requires a seller to make a valid claim for Capital Allowances on plant and machinery fixtures within the building. However, it should be noted that property traders, developers, charities and pension funds cannot claim Capital Allowances and as such if they are a seller, they cannot make a valid election. S198 Elections

The ability to make a valid election will depend on the importance of the allowances to the purchaser and their understanding (level of sophistication) of the capital allowances regime. S198 Elections

If you are looking to enter into an election before the original claim is accepted by the tax authorities, great care is required as once made, an election cannot be altered (see S.200 (3)). There is particular importance here if it is intended to elect at the tax written-down value. If this is the case you should consider some kind of indemnity to cover a claim being reduced or rejected).

While usually beneficial to the seller, an election should not be entered into until full consideration of the situation and facts. If you were to sell a property to someone with a higher tax rate than the seller for example, it may be possible to structure the transaction to make the most of the tax relief available. S198 Elections

If an allowable capital loss is going to result from the sale of the property the benefit of any retained Capital Allowances will be offset by a reduction in the allowable capital loss. The taxpayer’s position should be reviewed to judge the impact of this before the election is agreed. S198 Elections

S198 Elections – When you should look for when buying

Considering whether the election is actually valid is perhaps the most important point. There have been examples where ‘election type wording’ has been drafted into a contract on the mistaken belief that this will have the same effect as making an election – it won’t. In addition, some election provisions are incorporated into contracts erroneously when a seller has not even claimed allowances. If no allowances have been claimed your client may be free to claim a higher amount as an apportionment of the sale price. S198 Elections

A request for sufficient information should always be made by a purchaser to allow them to establish validity and identify which plant and machinery fixtures within the building are covered by the election. It is not usual, for example, for a seller to have claimed Capital Allowances on refurbishment works but to have neglected to make a claim when originally purchasing the building. In other cases, the seller may make a conservative claim and perhaps has not covered all the items qualifying as plant or machinery fixtures. This may be particularly relevant where the building is complex, or the trade of the seller is unusual. S198 Elections

Terms similar to “all plant and machinery fixtures in the building” should not be used by elections, and instead a list specifying the plant and machinery items should be used with the value attributed to that item also stated. S198 Elections


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Values Shown are not guaranteed and have been based upon assumptions including that you have paid tax over the last two years to at least the refund amount shown and assumes all assets are in the 20% main pool of allowances. Some assets may be in the 10% integral features pool which will lower the annual amount claimable, however the total benefit of the allowances remains the same. The amount claimed will depend upon your personal circumstances and are shown above for illustration purposes only.

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