When a commercial property changes hands, the fixtures inside it — the wiring, the lifts, the air conditioning, the sanitaryware — carry capital allowances that can be worth a substantial fraction of the price. Who gets them is decided not by valuation or by fairness but by a short document signed within two years of completion: the section 198 election. Miss the window and the allowances do not go to the other side; in many cases they disappear for everyone, permanently.
What the election does
Section 198 of the Capital Allowances Act 2001 lets a buyer and seller jointly fix the amount of the sale price attributed to plant and machinery fixtures. Without it, the apportionment would be a matter of valuation and argument between two parties with directly opposing interests: the seller wants a low figure to limit their balancing charge, the buyer wants a high one to maximise future allowances. The election replaces that argument with a number both sides sign up to, which then binds them and HMRC.
The mechanics are deliberately tight. The election must be made within two years of the date the buyer acquires the interest (or is granted the lease), it must be notified to HMRC by both parties in their returns, and the elected figure cannot exceed the seller's original expenditure on the fixtures or the actual sale price. The notice itself has to contain enough to identify what has been elected over: the amount fixed, the names of both parties, their unique taxpayer references, sufficient detail to identify the plant and machinery and the land in question, and particulars of the interest acquired.
The two requirements that make or break the claim
Since April 2014 a buyer's entitlement to allowances on second-hand fixtures depends on two conditions being satisfied by the seller, and this is where transactions come unstuck:
- The pooling requirement. The seller must have allocated its expenditure on the fixtures to a capital allowances pool — not necessarily claimed allowances, but pooled the expenditure. The pooling has to relate to a chargeable period in which the seller owned the fixture, but it does not have to be completed before completion: it can be done afterwards, within the normal time limits for that period's return or claim. A seller who was entitled to claim and simply never pooled — typically a company whose adviser never addressed fixtures — cannot pass anything on, and the buyer gets nothing. A seller who was never entitled to claim at all, such as a charity or a pension fund, is a different case: the requirement does not bite, though the buyer's qualifying expenditure is capped by reference to the disposal value brought in by the last owner who could claim;
- The fixed value requirement. The transfer value must be fixed, normally by a section 198 election within the two-year window, or failing agreement by an application to the First-tier Tribunal — and that application has its own time limit.
Fail either and the fixtures are lost to the buyer and every subsequent owner of the building. That is the detail worth repeating to anyone treating the election as post-completion housekeeping: this is not a deferral, it is a permanent extinction of value that no later planning recovers.
The £1 election, and why buyers sign them
Nothing in the legislation stops the parties electing a nominal amount. A £1 election gives the seller a clean exit with no balancing charge and gives the buyer essentially nothing — and buyers sign them with striking regularity, usually because the election arrives in a completion bundle at the end of a long transaction and nobody prices it.
The number is negotiable and it is real money. On a £4m industrial building, the fixtures element might reasonably be several hundred thousand pounds of qualifying expenditure; at 25% corporation tax, the difference between a £1 election and a properly negotiated one can run well into six figures of tax over time. The right moment to raise it is in the heads of terms, where it can be traded against price, not at completion, where one side has no leverage and no time.
What the allowances are worth once you have them
Fixtures split between two pools with very different rates. Ordinary plant and machinery attracts 14% writing down allowances on a reducing balance for periods from 1 April 2026 — 18% before that, with a hybrid rate across the change; integral features — electrical systems, cold water systems, space and water heating, lifts and escalators, external solar shading — sit in the special rate pool at 6%. The election must apportion between these categories rather than lumping everything together, because combining them distorts the computation in a way HMRC does not accept.
The Annual Investment Allowance of £1m can absorb qualifying expenditure immediately, including on second-hand fixtures acquired with a building, which frequently converts a slow 6% stream into a first-year deduction. Full expensing, by contrast, applies to new and unused plant bought by companies and does not generally reach second-hand fixtures in an existing building — a distinction worth getting right before modelling the after-tax price.
Practical sequence for a property deal
The version that works, in order: raise capital allowances in the heads of terms; ask the seller early whether the expenditure has been pooled and get the answer in writing; commission a fixtures survey where the building is old enough or complex enough that historic records are incomplete; negotiate the election figure as part of the commercial package rather than as an afterthought; sign the election and make sure both parties reflect it in their returns; and diarise the two-year deadline at exchange, not at completion.
Sellers have the mirror-image checklist. Pooling before sale preserves the ability to negotiate at all, and a seller who has claimed heavily may be better served by a low election even at the cost of some price — but that is a calculation to run, not an assumption to make.
Acumon handles fixtures analysis and elections as part of capital allowances work, alongside property tax and SDLT advice on the same transactions. If you bought a commercial building in the last two years and nobody has mentioned section 198 to you, the window is still open — but it is closing on a fixed date.