A s198 problem

[Incredulum]

Personally I would just ignore this on grounds of complete immateriality, but as I, in this matter, not master of my own destiny I have been told to fix it. So in utter frustration, suggestions please.

A legal person sold a property and entered into a s198 agreement to sell plant at a number (which happened to be tax written down value) and to sell integral fixtures for £1. In the contract, the seller warrants to bring proceeds of £1 into the integral fixtures pool.

The problem is that no claim has ever been made (or inded been possible to have been made as there has been no such expenditure in the period when integral fixtures have existed) in respect of integral fixtures. Therefore to put £1 into the pool would be to bring in a disposal value greater than expenditure, however the vendor has warranted that it will bring this sum into the pool.

How do I resolve this?

[section 44]

The seller has to breached the warranty. If the seller has not claimed any capital allowances in respect of integral features then it can't enter into a section 198 election in respect of them. Practically, what's the buyer's loss and would the buyer be able to get over hurdles such as mitigation and causation?

[dunhamsjd]

I have assumed that the expenditure incurred by the seller on which capital allowances have been claimed relates to fixtures and the expenditure was incurred by the seller prior to the FA 2008 changes.
This means that all of the seller's original expenditure was included in the main pool and therefore this has to be where all his disposal proceeds need to be allocated, notwithstanding that the election and warranties may say different.
The items on which capital allowances have been claimed now represent both main pool items (e.g sanitaryware, fire alarms etc) and special rate (integral features) items (e.g. heating systems, lifts etc) for expenditure incurred by the buyer (assumed post April 2008) and to which the s198 election applies.
Two separate elections are needed so that for the buyer his expenditure can be split between the different assets classes. The buyer may also be able to make an additional claim based on a s562 CAA 2001 apportionment for assets now included under integral features that previously were not possible for the seller prior to FA 2008 changes (e.g. cold water systems, electrical lighting and power) if the numbers involved provide a clear tax benefit to the buyer.
It would seem to me that you have been undone by some poor drafting by the lawyers in the wording used in the documentation.

[Incredulum]

It would seem to me that you have been undone by some poor drafting by the lawyers in the wording used in the documentation.

Agreed. Thanks both for your posts.

Practically, of course, there is no issue whatsoever - presumably anyway the buyer will be making a claim for allowances on the integral fixtures on an apportionment basis anyway.