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Understanding Section 198 Election in Capital Allowances

Published by Merisha Shrestha
Published Date: April 26, 2023 , Updated Date: April 30, 2024

The Section 198 Election - 'Fixed Value Requirement' of the Capital Allowances Act (CAA) 2001 is an aspect of capital allowances that is often overlooked and poorly understood. It is crucial to acknowledge the importance of the S198 election, as it can significantly impact property businesses involved in commercial property transactions and failing to make the S198 election can lead to a complete loss of capital allowances.

In this article, we will provide a comprehensive overview of Section 198 Election and explain its significance for UK taxpayers who wish to claim capital allowances on commercial property.

Defining Section 198 Election

Defining Section 198 Election

The Section 198 Election of CAA 2001 is specifically related to fixed value requirement of the fixtures within commercial properties. Essentially, the fixed value requirement means that the buyer and seller in a property transaction must determine the value at which the fixtures within the property are to be transferred.

This is done through signing an election under Section 198, which ensures the disposal value used by the seller for the fixtures will always equal the purchase cost of the buyer for the capital allowances purposes.

Sample Election under Section 198

Shown below is a sample election under section 198 of the Capital Allowances Act 2001:

Sample election under section198

Importance of Section 198 Election

The section 198 election is the standard way of dealing with the transfer values for fixtures since April 2012. This required the sellers who have claimed capital allowances to pool qualifying expenditures and enter into S198 election to transfer the capital allowances to the buyer.

However, from April 2014 onwards, the sellers are required to pool qualifying expenditures even if they have made any claims for capital allowances.

Failure to address the transfer of claimed capital allowances during a sale means the seller will keep the capital allowances, and the buyer will receive nothing. Similarly, if the seller has not claimed capital allowances and this is not discussed during the sale, the buyer or any future owner will lose the chance to claim these capital allowances permanently.

This is where Section 198 Election comes into play. By making a Section 198 Election, the buyer can receive the seller's entitlement to capital allowances on fixtures, even if the seller has already claimed them. This can be a significant advantage for the buyer, as it can result in higher capital allowances claim and a lower tax liability.

Content in a Section 198 Election

The Section 201 of CAA 2001 outlines the content required for the S198 election. For the S198 election to be valid, it must include the following information:

  • Disposal amount fixed by the election.
  • Names of each taxpayers making the election.
  • Sufficient information to identify the fixtures and relevant land on which the fixtures are attached.
  • Relevant interest that the purchaser has acquired in the property, such as freehold or long leasehold.
  • Unique Taxpayer References (UTR) of both taxpayers, or confirmation if either party does not have a UTR.

By including all this information, the Section 198 Election can be considered valid and will be legally binding for both parties.

Did You Know? 

The disposal amount for the fixtures should be ‘just and reasonable’ and should not exceed the original value of the claim by the seller and the overall sale price of the fixtures.

Invalid Section 198 Election

If the S198 election fails to meet the requirements listed above, it will be deemed invalid, and will not serve as evidence of the disposal value of the seller or the purchase value of the buyer for the fixtures.

Failure to make the S198 election means the failure to meet the fixed value requirement, therefore the buyer and all future buyers will be unable to claim any plant and machinery allowances for that fixture. As a result, the qualifying expenditure incurred by the new buyer will be treated as nil.

Therefore, it is crucial to complete Section 198 Election accurately to avoid such issues and ensure that both parties can claim capital allowances correctly.

Deadline for Section 198 Election

The S198 election must be completed within two years of the completion date of the sale of the property. This time limit does not refer to the election being signed but to its being submitted to HM Revenue and Customs (HMRC).

However, if one of the parties involved asks a tribunal to decide the disposal value of, then the time limit is extended until the tribunal decides. It's important to know that once a decision is made, it cannot be changed.


The Section 198 Election has been widely used by property businesses undertaking commercial property transactions given the strict fixed value requirements of the CAA 2001. To avoid losing out on entitled capital allowances, it's crucial not to overlook making this election. Failing to do so can lead to missing out on valuable tax savings.

Merisha Shrestha
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