When purchasing a commercial property, most attention is given to price, location, and legal due diligence.

However, one critical area is often overlooked:

The Section 198 election.

This single clause can determine whether a buyer can claim capital allowances on commercial property, or lose that opportunity entirely.

What Is a Section 198 Election?

A Section 198 election is a formal agreement between the buyer and seller of a commercial property.

It determines:

• The value of qualifying fixtures within the property
• The amount the buyer can claim as capital allowances

Fixtures typically include:

• Electrical systems
• Heating and air conditioning
• Lifts
• Sanitary ware

Although these assets are part of the building, they can represent significant tax relief.

Why the Section 198 Election Is So Important

In the context of a commercial property purchase in the UK, the election plays a central role in securing capital allowances.

Without it:

• The buyer may be unable to claim capital allowances on fixtures
• Relief can be lost permanently
• There is limited scope to revisit the position

With a properly structured election:

• The claim position is clearly defined
• The value of fixtures is agreed
• The buyer can proceed with certainty

When Does a Section 198 Election Apply?

A Section 198 election is relevant when:

• A commercial property is sold
• The property includes qualifying fixtures
• The seller has claimed, or was entitled to claim, capital allowances

It must be addressed during the transaction process, not after completion.

Common Mistakes in Property Transactions

Despite its importance, errors are widespread in this area.

• No Section 198 Election Included

In many commercial property transactions, the election is not considered. This means the buyer may lose the ability to claim capital allowances.

• Election Agreed at a Nominal Value

Some agreements fix the value at £1 or another minimal amount without proper analysis. This means the buyer restricts their own capital allowances claim.

• Relying Solely on Solicitors

While solicitors manage legal documentation, capital allowances require specialist input.

• Addressing It Too Late

If the issue is raised after exchange or completion, options are limited and claims may be permanently impacted.

Can You Claim Capital Allowances Without a Section 198 Election?

This depends on the circumstances.

In some cases:

• Alternative approaches may be available
• Historical analysis may still uncover value

However, where a Section 198 election should have been made and wasn’t, the ability to claim can be significantly restricted.

A Practical Example

A company acquires a commercial property but does not consider capital allowances during the transaction.

No Section 198 Election is agreed.

A later review identifies significant qualifying fixtures, but due to the missing election, the company is unable to claim the full value.

The result is a substantial loss of tax relief that could have been secured with proper planning.

When Should You Consider a Section 198 Election?

The correct time is: Before exchange of contracts

Capital allowances should be reviewed:

• During due diligence
• Alongside legal negotiations
• With specialist input

This ensures the Section 198 election is structured correctly and the claim is protected.

How CPA Tax Can Help

At CPA Tax, we specialise in capital allowances on commercial property and work closely with clients, accountants, and solicitors during transactions.

We support with:

• Capital allowances due diligence
• Section 198 election advice
• Maximising available tax relief

If you are buying, or have recently purchased, a commercial property, it is essential to ensure this area has been properly addressed.

Contact CPA Tax to ensure no valuable capital allowances are missed.

📩 Contact us today to learn more about capital allowances.