Importance of seeking advice before buying or selling a commercial property

Sales contract clauses
A capital allowances claim is only possible once in the history of a building. That means that if a previous owner has claimed capital allowances on a property, the current owner will be unable to claim. New legislation was introduced in 2012 that makes it mandatory for the allowances to be allocated to either the seller or buyer.

When is the best time to seek advice in the sale process?

The best time to seek advice in the sale process is the time at which your offer on the property has been accepted. CPA Tax offers free entitlement checks on properties regardless of whether or not a client currently owns them. Therefore, we can assess whether or not allowances have already been claimed and if the property is eligible. If it is determined that the property is eligible for allowances, CPA can help to secure them for the client.

How are allowances secured?

CPA can help your solicitor with the correct language to use in a sales contract in order to secure the allowances. In order to retain the allowances when selling a property, the seller will need to issue the buyer with an s198 election, and similarly, the buyer will have to issue the seller with an s198 election if they wish to purchase the rights to the allowances.

S198 Elections

Basic principles

The Finance Acts 2012 & 2014 have made it mandatory for the buyer and seller to allocate capital allowances to one party in the sale of a commercial building. Capital allowances allow a commercial landlord to claim tax relief on items considered integral to the building such as heating and cooling systems, fire and security systems, electrical wiring etc. Allowances can only be claimed once in the history of a building, meaning that if the seller claimed them, the buyer would not be able to. Therefore, in this instance the seller would be legally obligated to issue the seller with an s198 (freehold) or s199 (leasehold) election.

What are s198/s199 elections?

These elections dispose of the rights to claim allowances on the plant and machinery/integral feature of a building for a fixed disposal rate. This is typically £1-£2 depending on the year the seller purchased the property and their eligibility. If the property was purchased by the seller prior to 2008, there is still a chance for the buyer to make a restricted capital allowances claim on cold water and electrical systems only. The seller has two years after the sale of the property to issue the buyer with the election. The seller will still be able to continue claiming the tax relief even after they have sold the property.

Alternatively, when a seller hasn’t claimed, the buyer is able to issue them with an election so that they may make a claim. They also have two years to do this after the sale of the property.

How to issue an election

Elections should ideally be issued at the time of sale and included as part of the sales documents. They are typically found in the sales contract or in the CPSE part 1 enquiries. As capital allowances is a niche and understudied area, solicitors often do not realise that they must include the elections as part of the sale. Therefore, it is always best to seek advice from a capital allowances expert before completing the sale.

For any enquires contact Salman Sadiq