In the intricate world of commercial property acquisitions, understanding the nuances of capital allowances, especially the S198 Election, is crucial. At Ward & Co, our wealth of financial planning knowledge combined with first-hand experience in the agricultural sector positions us as your trusted guide in this domain.
Definition of Fixtures for Capital Allowances
For capital allowances purposes, fixtures are defined as “plant or machinery that is installed or fixed to a building or land in such a manner that it becomes, legally, part of that building or land.” This includes elements like toilets, heating installations, and general lighting. It’s important to note that freestanding plant and machinery require a separate valuation.
The Prerequisites – Pooling and Fixed Value
To claim capital allowances on fixtures within a commercial property, two main requirements must be met:
- Pooling Requirement – This necessitates that the seller of the property has included the cost of the fixtures in their capital allowances pool.
- Fixed Value Requirement – Both the buyer and seller must agree on the disposal value of the fixtures. This agreement is solidified by signing an S198 Election, which becomes binding for capital allowances considerations.
If these requirements aren’t met, the buyer loses the ability to claim any capital allowances on the fixtures’ cost.
The Significance of the S198 Election
The S198 Election should be finalised within two years from the transaction date. If there’s a disagreement on the value, either party can approach the First Tier Tribunal within this period for a resolution.
Sellers are advised to finalise the value and sign the S198 Election to avoid potential complications. Buyers are also encouraged to finalise the value, but they have the tribunal as a fallback option.
The S198 Election doesn’t have a minimum value, but its maximum value is restricted to the seller’s original cost of the fixtures.
Additional Considerations
If the fixed value requirement isn’t met, the seller must present a disposal value for capital allowances, which might be reviewed by HMRC.
For properties not previously used for commercial activities, an S198 Election might not be applicable. However, the buyer might still be eligible to claim capital allowances based on a portion of the purchase price attributed to fixtures.
For commercial properties acquired before April 2012, where no allowances were previously claimed for the fixtures, it’s still possible to account for qualifying expenditure on fixtures in the current capital allowances pool, provided the fixtures are still owned.
Seek Expertise with Ward & Co
Navigating the complexities of capital allowances and the S198 Election requires expertise. Trust Ward & Co Accountants for clear guidance in this area. For further assistance or to discuss your specific requirements, contact our team.
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