Property Acquisitions and the S198 Election

June 20, 2024

We ended up agreeing to a £2 election

Is something we hear A LOT, and perhaps far more than we should when it comes to claiming capital allowances on commercial property acquisitions.


What on earth is an election and why should this matter to me?

Well, prior to April 2014, if you were acquiring a commercial property, and were looking to claim capital allowances, you simply had to check whether or not any previous owner had claimed (and if they had claimed what this related to), and then you could look to make your claim – regardless of how long ago you bought the property.

However, the Pooling Requirement was legislation introduced back in 2012 and came into effect from April 2014 onwards. This introduced the requirement for capital allowances to be dealt with at the point of sale, so now when you acquire a property second hand, the seller is required to declare the value of any available capital allowances to the buyer by way of a Section 198 Election (s198).  You have 2 years from the date of sale to agree this value and notify HMRC. Without this election in place, it puts the buyer in a position where they may be unable to claim any capital allowances on the acquisition.


“This sounds simple enough, surely nobody would miss this?”

Unfortunately, not quite. Firstly, you’d be surprised by how many contracts contain no reference to capital allowances and include no election whatsoever. We’ve seen on multiple occasions where exchanged contracts have been silent on capital allowances and the s198 election deadline has passed, meaning our clients are now in a position where they’re unable to claim.


Alright so it happens, but what if we are still within the 2-year window?”

This is a slightly better position to be in, as we have the chance to negotiate with the vendor to agree a value of the capital allowances to be passed over. However, ultimately the vendor will be the one to pass the allowances over, so obtaining their co-operation at this stage is pivotal, and something that would have been secured by ensuring appropriate clauses were in place in the sale contract.

We often find that once a property has been completed on, the chain of communication between the two parties is no longer there, and therefore reaching out to someone who acts with regards to the vendor can prove challenging, especially if there are limited details available in which to contact them in the first place.

Do not get me wrong, it’s entirely possible to agree an election post completion, as I’ve supported my clients in this regard on many occasions and have been successful. However, it highlights the importance of working with a specialist from the outset to either agree the correct election value at the point of completion, or to ensure appropriate clauses are in place so that they can support you in securing the claim post completion.


“Okay, so we’ve agreed an election, what’s wrong with it being £2?”

When you agree to a £2 election you are agreeing that the value of any capital allowances for you to claim on with regards to your property acquisition is only £2, and therefore you are effectively unable to make a capital allowances claim, unless you subsequently carry out works to the property and claim on this project separately.

The value of £2 is often used when the seller has made all appropriate claims and will continue to utilise any remaining unclaimed allowances themselves going forward, however we tend to find this is a default position and may not accurately represent the true capital allowances position.

The ideal position for a buyer is that the maximum possible value of the unclaimed allowances is passed over to them to claim. Sometimes the seller will have already claimed but will still have some writing down allowances available, and so will pass this balance onto the new owner. In other instances, the seller will not have claimed, and so a full claim would be available instead.

Of course, this is a negotiation between the two parties, and sometimes they will choose to split the allowances equally between them, other times the seller may not be willing to pass over any – but it should always be a discussion at the very least, and not just an assumption of the capital allowances position.


“Is there anything else to consider?”

There are a few things to look out for.

  • Firstly, it’s worth considering whether the vendor is actually entitled to claim capital allowances. Non-tax paying entities such as pension funds, charities and government bodies cannot claim, and likewise, neither can companies who hold the property as stock. Therefore, in these instances, there would be no requirement to enter into an election and you should be able to make a claim – you’d also just need to consider whether the seller also acquired the site post April 2014.
  • You might be stuck with a £2 election, however if the seller acquired the property before April 2008, then you would have the option to explore what’s known as an integral features claim (a claim on a restricted set of plant and machinery, typically equating to approximately 5% of the purchase price). If you’re in this position, it would be ideal to have an understanding of any works carried out by the seller post April 2008, as this could impact your ability to claim.
  • Once an election is submitted to HMRC it is final and cannot be amended or revoked, so be mindful of that also.


“Would my solicitor or accountant not deal with this?”  

Some solicitors or accountants will do; however, we often find it can be a grey area regarding where the accountability lies in agreeing the correct election value, navigating the legislation, as well as exploring a properties ownership and works history. Another reason why best to engage a specialist to take the lead with this.

Regarding making the actual claim, property acquisition claims are notably more complex due to there often not being any further breakdown of a purchase price (typically accountants will work on the cost of individual items), hence why it’s often best to work with a specialist in these scenarios. This doesn’t even have to be for ongoing or recent acquisitions, working with a specialist can allow businesses to carry out retrospective reviews of historic acquisitions, and uncover further value.


“How can Bonham & Brook help people then?”

Bonham & Brook can support in all the above circumstances, whether it be a retrospective review of property transactions, or with ongoing acquisition support.

In fact, if you’re in the acquisition process, we offer a no obligation review of the sale contract and can advise of any recommended clause amendments. We can advise where there might be an opportunity to make a claim, including what this could look like regarding tax savings for your business. Should you decide you wish to make a claim, we will be more than happy to support you with this and will then enter a formal agreement surrounding this.

Our expertise isn’t simply restricted to acquisitions. We can of course help with claims on refurbishments, builds, extensions, and fit outs too.

Our capital allowances team has a combined 20 years of experience and has worked on over 1500 different claims, generating over £400 million in capital allowances – If you’d like support with regards to capital allowances on any of the above situations, then please give us a call on 020 3523 9125 or email

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