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Spotlight on s198 Fixtures Elections with Enhanced Capital Allowances

Updated: Apr 29

Lawyer's Discussing Contract
Lawyer's Discussing Contract

With the use of first year allowances (FYAs) like Super Deductions (130%/50), Full-Expensing (100%/50%) and Enhanced Capital Allowances (100%) Sellers are starting to pay much closer attention to disposal values and the protection offered by a valid Capital Allowances Act ('CAA') s198 fixtures election on sale.

Unlike claims for most ordinary writing down allowances, claims for FYAs require a separate disposal calculation over the normal class pool allocations which means a value above £0 (particularly for 100% FYA claims) is much more likely to result in a balancing charge or clawback (up to the lower of the FYA amount claimed and disposal value).

In this article we explore the following to help businesses stay on track:-

An invalid s198 election is a potential win-win for HM Revenue & Customs ('HMRC') and an easy target for their Inspectors. For a more in-depth look at transactions involving capital allowances check out this article on 'Dealing in Capital Allowances'.

Time Limits

Whilst an election must be notified to HM Revenue & Customs no later than 2 years from the date of sale the actual date for submission is frequently sooner because a business that wants to benefit from an election must include a copy of it in their tax return for the first period in which the election has an effect.

An election is only valid if it signed within the two-year deadline and submitted to HMRC.

Filing Deadlines

Let's say a Seller is in the process of getting its estimated £2 million plant and machinery allowances (‘PMAs) claim updated for its historical refurbishment works and agrees to share £1 million with a Buyer via a s198 fixtures election for a sale that was completed on 1 March 2024. The contract contains a provision that the Seller will organise the claim and prepare an election for signature within 6 months of the completion date (i.e. by 1 September 2024).



Year End

31 March 2024

31 Dec 2024

1st Filing Deadline

31 March 2025

31 December 2025

Amendment Deadline

31 March 2026

31 December 2026

s198 Deadline

1 March 2026

1 March 2026


In this example, the statutory longstop date of 2 years from completion (1 March 2026) is irrelevant since the Seller will want the benefit of its protection to keep £1 million of PMAs a lot sooner.

Provided the election is prepared and circulated per the contract, the Seller and Buyer should have plenty of time to include in their initial tax return deadline without the cost and hassle of amendment which is why having a realistic and specific deadline in the sale agreement is very important.

If a party wishes to benefit from a s198 election they must include a copy in the first tax return affected.

Claims or s198 Election Delays

If the claim is not prepared by the date specified in the contract (i.e. 31 August 2024 in the above example) then neither party may have an obligation to sign a s198 election; however, given both parties in this deal have an incentive (£1 million of PMAs) it is likely that they will still wish to do so.

However, suppose that the cost of the claim was being met by the Buyers and that in exchange the full value of £2 million is to be passed on. In that scenario, a missed contract deadline may not be met with the same cooperation. Worse still, if the Buyer only starts the preparation of a claim to meet its own filing deadline, the Seller could have already filed its 1st tax return and be understandably resistant to file an amended one.

There are lots of reasons capital allowances claims may still need to be prepared for recent expenditure following a sale and the message is clear – make sure the calculations are completed as soon as possible, certainly within specified contract deadlines and ideally before the 1st filing deadline which can be different for each party.

If you're a Seller that wishes to benefit from a £1 or £2 election don't forget to ensure it is not just signed by both parties per the contract - make sure it is actually submitted in the 1st tax return (which will be the chargeable period you are required to bring a disposal value into account).

A missed contract deadline for outstanding claims can jeopardise election signing. A signed s198 election left in a client file is not valid and does not bind HMRC.

Connected Party Transactions

Provided the core conditions are met it has always been possible to have a s198 fixture election between connected persons.  In fact, if you have a succession or transfer between connected parties that is outside the normal company reorganisation rules (CTA 2010 s948) because it fails to meet the upper shareholding criteria the successor will still need a s198 election in order to be entitled to claim under the ‘mandatory pooling’ conditions.  Failure to do so, is an automatic restriction to nil even if the assets are otherwise transferred at TWDV by the predecessor.

Where ‘connected’ has relevance in fixtures elections is for the little known s199 election which can be used to fix the disposal amount on the granting of a long lease. As the grant of a lease does not normally result in a disposal or transfer of entitlement the parties must first elect under a s183 election to treat it as such - this election contains a specific exclusion for transfers between connected parties which means you will not see a s199 election in this circumstance.

Whilst sales and transfers between connected parties can be subject to enhanced anti-avoidance, a s198 election is not only possible, it can actually be mandatory to avoid losing out.

Role of Non-Tax Payers

Unlike Structures and Buildings Allowances which is based on 'first use' and may need a non-taxpaying Seller to provide an 'Allowances Statement', claims for plant and machinery allowances are governed by entitlement.

A non-taxpaying Seller like a charity, pension fund or government body is simply not entitled to claim plant and machinery allowances so has no basis to bring a disposal value into account and therein get a s198 election on sale.

Where a non-taxpayer does get involved is when it acquires a property from a taxpayer. In these circumstances they will often be asked to sign a s198 election to agree the disposal value the taxpaying Seller is required to bring into account. Instead of quoting a Unique Tax Reference ('UTR'), the Buyer is allowed to state 'does not have a UTR' on the election notice.

Non-Taxpaying Buyers can sign an election prepared by a Seller but otherwise they are irrelevant to them.

Disposal values in avoidance cases

HMRC have confirmed that for the purposes of the latest FYA rules "an election under s198 CAA 2001 is an acceptable means, enshrined in legislation, by which two businesses may agree the part of the sale price that is to be attributed to the fixtures when there is a sale of the qualifying interest in the underlying property".

The first exception to this general principle (CAA 2001 s197) is if the disposal event is part of, or occurs as a result of, any scheme or arrangement that has the obtaining of a tax advantage as its main purpose, or as one of its main purposes.

The second exception is the specific anti-avoidance contained within the relevant FYA legislation which is more widely drafted to catch arrangements that are designed to reduce or avoid a balancing charge.

In both cases, the key first step is whether there is a 'tax avoidance arrangement' and most

commercial transactions are unlikely to trigger this hurdle and therefore, the disposal value set out in a fixture’s election can be nominal for genuine commercial reasons, rather than tax avoidance.

It is worth noting that when the Office of Tax Simplification last reviewed s198 elections in 2020 it acknowledged and discussed the widespread use of £1 or £2 elections without difficulty or reference to anti-avoidance.

That said, if you come across a project with esoteric finance, accelerated payments, high qualifying costs, overly complex transaction steps, an unusual commercial fact pattern and an aggressive approach to capital allowances - proceed with caution.

A s198 election is an acceptable means, enshrined in law, for two parties to agree the fixtures value on a sale regardless of type of allowances claimed.

Amalgamation of election items

One feature of the fixtures election that frequently causes difficulty in practice, and has done since its introduction, is the requirement to include ‘information sufficient to identify the machinery or plant’. 

This is because capital allowances pools can contain a mixture of assets for a variety of properties that have been added over many years and a £1 pool election may not only be tax advantageous to the Seller it also can offer expedience for details that may simply no longer exist.


In recognition of this, the Inland Revenue (IR) confirmed the acceptability of a single election covering all the fixtures in a single property (but not multiple properties) in IR Tax Bulletin 35 (June 1998) shortly after the first fixtures election was introduced (CAA 1990 s59B). 

This basic principle remains, however, it has been updated with further guidance to prevent abuse (HMRC Manual CA26850), most notably the introduction of ‘integral features’ in 2008 and the requirement to have 'main rate' and 'special rate' pool splits.

Best practice is to put as much detail as you reasonably have in the s198 election to avoid accusations of attempting to distort the computation and to make it explicit as to what assets are being disposed of. This is particularly pertinent for assets subject to FYA claims which although may be 'special' or 'main' rate expenditure are not actually allocated to their respective class pools in the same way as other assets due to the way they are claimed, separate disposal value calculations and greater risk of balancing charge.

A degree of amalgamation has always been allowed in a s198 for a single property but if you have the details and wish to rely on it, or pass on value, you should provide as much information on the elected P&M as you can.

Tax Tribunal

When the 'fixed value' and 'mandatory pooling' requirements were introduced in April 2012/14, it effectively made s198 elections mandatory for Buyers (not Sellers) in most commercial property deals* to avoid an automatic restriction to nil.

In recognition of this, the legislation introduced a safeguarding mechanism for either party to refer apportionment disagreements for 198 values to First Tier Tribunal. In reality this is rarely used and in the government’s own words “this is because it will clearly not be in the interests of either side to incur the trouble and any cost of going to a tribunal unnecessarily, in any case where it would have been possible to agree an apportioned value voluntarily”.

If you wish to do so you will need to make sure the basis of claim is clearly understood (i.e. that the Seller is required to bring a disposal value into account) and that what you expect to be a reasonable apportionment is supportable. HM Courts and Tribunal Service have confirmed that the Tribunal has now dealt with <50 alternative apportionments.

*the purchase of an asset from a non-taxpayer should not require a new s198 election because the seller is not entitled to claim or bring a disposal value into account. There maybe an election or 'allowances statement' from its acquisition instead.

An appeal to Tax Tribunal will require details of the Seller's claim, supporting documents and valuation calculations to succeed.

Structure and Contents

The 2020 recommendation from the OTS for HMRC to publish an election template (Recommendation 11) to make it easier for businesses has yet to materialise so there is still no agreed format only the following minimum information as set out in CAA 2001 s201.

  • the amount fixed by the election

  • the name of each person making the election

  • information sufficient to identify the plant or machinery fixture and the relevant land,

  • particulars of the interest acquired by or the lease granted to the purchaser

  • the Unique Tax Reference number (UTR) of each of the persons making the election, or confirmation that the person does not have a UTR.

It is worth noting that a capital allowances election is a 'joint' election which means it must be countersigned by both parties in order to be valid. An example contract election can be found below.

CAA 2001 s198 Election (Blank)
Download PDF • 312KB

An election must be countersigned by both parties and contain the above minimum details to be considered valid for submission to HMRC.

HMRC Powers to Amend

A s198 election is irrevocable once submitted to HMRC. Therefore, the only person that has the power to amend an election is HMRC and this will typically only happen if:-

HMRC has no obligation to amend an election submitted in error or accept one that it is invalid because it is late, unsigned or incorrect.

Once submitted to HMRC a s198 election is irrevocable. Only HMRC has the power to amend an election and only to reduce the 'maximum allowable amount'.

Consequences of Invalid or No Election

When an asset is sold, a seller who has claimed fixed plant and machinery allowances will normally be required to bring a disposal value into account that reflects the net proceeds of sale in accordance with CAA 2001 s196(1) and s562. A valid election not only protects your position but can avoid the expense of a specialist valuation and provides certainty.

Without a valid election, HMRC Inspector of Taxes are obliged to refer such disposal value calculations to the Valuation Office Agency for determination which could easily result in an unsuspecting clawback, particularly when only a nominal disposal value has been brought into account (e.g. tax written down value).

A Buyer without a valid s198 election from a taxpaying Seller will likely be restricted to nil under the 'mandatory pooling' and 'fixed value requitements'. Exceptions to this general rule include older claims for 'integral features' and plant or machinery included in past industrial building allowances or research and development allowances claims.

An invalid s198 election will expose the Seller to an unsuspecting clawback of allowances and restrict a Buyer to nil.

Planning and confirming the capital allowances position of a deal (asset or company) is almost always worthwhile to make sure your position is optimised; and if you have a question, please do not hesitate to contact 


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