Free trial Sign-up

Please leave your name and email and we'll be in contact shortly.



Contact Number


Please complete the sum:        
10 + 7 =

A review of capital allowances changes on commercial property transactions

7th August 2015

We are now a couple of years removed from the large changes to capital allowances and how these affect businesses, so it seemed an appropriate time to revisit the rules and examine how they have been implemented.

Capital Allowances had been a lucrative business for many accountants who submitted ‘historical claims’ for large amounts of old properties.  In this scenario accountants were spotting opportunities where claims had not been made on the purchase of commercial property; often for such things as the fixed plant and machinery in commercial properties that was integral to the building, e.g. heating and electrical systems.  These claims were perfectly legal, however caused great concern to HM Revenue and Customs who were struggling to quantify the amount of tax they might have to pay out.

To counter the number of historical claims, HMRC introduced two rounds of rule changes.  Starting from 6 April 2012 (1 April for companies), the buyer and the seller needs to agree the amount attributed to fixtures, usually via a Section 198 election, with the option for either the buyer or seller going to a First-tier Tribunal within two years of the sale if they are unable to agree.  Where neither the buyer nor a previous buyer has made a claim, the buyer can claim capital allowances under the just and reasonable apportionment rules.

The second change was that from 6 April 2014 (1 April for companies), if all available allowances haven’t been “pooled”, i.e. identified before a commercial property is sold; included in a capital allowances computation; and notified to HMRC, all allowances are lost forever – for the seller, the buyer and any future buyer.

Now, where there has been a previous claim then a Section 198 election should still be agreed between the parties, with the option of the First-tier Tribunal if they cannot.  However, where it is established that the seller could have claimed capital allowances but did not do so, it is now imperative for the seller to formally notify the expenditure qualifying for capital allowances in a tax return to HMRC before a sale and this also needs to be actioned before entering into a Section 198 Agreement to agree the capital allowances on sale. In practice this really needs be agreed as part of the negotiations on sale of the property.  Lawyers acting in relation to such transactions should therefore bring this to the attention of their clients.

If the above is missed during the sale, the new owner will have to persuade the seller, after the event, to allow a capital allowances claim to be made. The seller would have to agree for the capital allowances to be pooled into their own tax computations and then enter into a retrospective Section 198 election within two years of the sale.  The problem is that seller is unlikely to agree to do so without some financial incentive provided by the new owner, if at all.  In this scenario lawyers need to make sure that they can not be held to blame.

Practically speaking we are seeing lots of commercial property transactions where a s198 election has not been given any consideration.  Or even transactions where the s198 election has been completed incorrectly, be it unsigned, or not even mentioning any figures!

This is a tricky area for all concerned and something that often needs to be run past your client’s tax advisers.

Steven Holmes is a tax consultant based in the Leeds office of top 30 UK firm of accountants, Armstrong Watson.  Steven is a member of Armstrong Watson’s specialist UK wide legal sector team.

The client and experts view...

  • thumb1
Latest newsspeech Bubble

System Maintenance

Please be aware that we are performing some system maintenance this weekend. We don’t anticipate that this will result in any downtime of our services, but we apologise if it does cause any inconvenience

Government Confirms New Regulations and Qualifications for Estate Agents Will Happen

The government has accepted the proposals of the Regulation of Property Agents (RoPA) with wide-spread consequences for estate and letting agents.

The proposals reach right into the heart of the industry to affect regulation, training and licensing.



Fears of Tougher Regulations and Unjust Costs Mount Ahead of Government Announcement

Estate Agents are waiting for the big reveal on Monday after Lord Best has admitted some firms could close when the regulation of property agents (ROPA) makes its recommendations to the Government early next week.

Lord Best, the chair of ROPA, has already outlined the working group’s desire for more regulation.


[NEWSFLASH] Agent Charged DOUBLE Over AML Registration Mistake

Property Industry Eye (PIE) has highlighted the case of an estate agent who has fallen foul of HMRC and been charged double.

On 4th April, with plenty of time to spare, Hayman-Joyce renewed their annual HMRC registration. They paid the fee and thought they’d ticked all the boxes.


Compliance in a Box: The Natural Remedy for Your AML Headache

Estate agents around the country are realising that the new 5th AML Directive goes deep. There’s a lot of work involved in becoming compliant. And the penalties for non-compliance, either deliberately or through confusion, are severe. (more…)

newsletter sign-up

Sign up for our e-newsletter

Email Address

trial sign-up

Click the Apply button opposite to use our software on a trial basis...

  • etsosnews

  • etsosnews

  • Linkedin Twitter Facebook
    This site uses cookies. Find out more about this site’s cookies.