Sale Of Commercial Property – s198 Election (2)
The tax rules state that the purchaser’s entitlement to capital allowances in relation to commercial property is restricted to the disposal value that the vendor of the property brought into account, even if this was not the immediate past owner. 

Furthermore, it is the purchaser’s responsibility to obtain and provide details of prior claims and disposal values, which might prove difficult if the original owner has ceased trading or if records are no longer available.

It is also a condition that the vendor must ‘pool’ the qualifying expenditure (i.e. add it to his or her own capital allowances computations). This would include expenditure incurred possibly many years before, which he or she may have neglected to claim previously. 

There are some categories of expenditure that the vendor may not have been able to claim at the time the costs were incurred – these may pass through to the purchaser without having been pooled, or be included in a joint ‘s198 election’. The most likely category is integral features installed before April 2008. 

Under a 's198 election' the purchaser and vendor negotiate and elect jointly to set a figure to be treated by both parties as the disposal sale proceeds and purchase price for the fixtures (but not chattels). This figure would also be binding on HMRC and any subsequent purchaser of the property.
Example:
In the tax case of Mr and Mrs Tapsell and Mr Lester v HMRC (2011) the partners purchased a care home as a going concern. 

They made a claim for capital allowances totalling £146,014 – the figure being based on an apportionment of the purchase price.  £106,014 of this amount related to the purchase of plant and machinery plus £40,000 that had been allocated as ‘fixtures and fittings’ in the contract.

Shortly afterwards, the sellers submitted a capital allowances claim of £68,811 for the same tax year. They provided no supporting details to HMRC, they then emigrated and could not be traced by either Mr and Mrs Tapsell or HMRC.

HMRC disallowed Mr and Mrs Tapsell’s capital allowances claim on the grounds that they failed to show that the sellers had not previously claimed allowances on those fixtures.

This tip was first printed in Business Tax Insider in November 2016.

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