s198 in place when buying FHL, what happens on sale?

[Chewbacca11]

If an FHL is bought in 2013 for £190k, and section 199 was put in place in relation to the purchase of the fixtures and fittings worth £5k. Since then 18% writing down allowance has been claimed annually on the F&F resulting in a NPV of £2,700.

The FHL has now been sold, and a new s199 (or even s198) election is not been put in place with the new buyer, so the sale of the FHL property is equivalent to ‘cessation of trade’, so a balancing allowance can be taken.

The part I'm confused about is how these F&Fs are treated for capital gains tax calculations. A ‘disposal value’ (current NPV I think) must be surely entered in the tax computation... Am i correct that for CGT computation, the original purchase price must be £190k? Is the NPV balancing allowance claimed as a disposal cost?

TIA.

[Incredulum]

Two different things going on. Don't confuse them (unless you have a capital loss where you may have an interaction).

Firstly, in the rental income schedules. The absence of a 198 election is a likely problem. A balancing allowance may NOT be claimed. Both parties need the same number in their capital allowances computation. If this wasn't agreed in the sale contract then why would the purchaser be nice to you? You're more likely to end up with a balancing charge... as a 'just and reasonable' value must be used.

Secondly, in the capital gain comp, take your proceeds and deduct your 190k cost and any other relevant costs (legal fees, SDLT, improvements) and indexation (if a company) as usual.

If the property is sold at a loss then you have a s41 TCGA restriction to the loss according to the CAs previously claimed. This cannot create a gain.


BTW, I think you mean TWDV not NPV.

[Chewbacca11]

Thanks for your response Incredulum.

You advise "The absence of a 198 election is a likely problem. A balancing allowance may NOT be claimed". Client is insisting that a s199 was put in place rather than a s198 for his fittings. I was expecting s198 so I've asked to see the actual documentation. However, I'm still struggling to find a useful definition that explains the difference is between a s198 is vs a s199, other than s199 is a 'lease equivalent'.

Assuming it is a s198 election, checking I have understood correctly, the original £5k spent on F&F that is under a s198 election is NOT included in the purchase price of the property in the CGT computation? But the appropriate balance allowance at TWDV can be claimed as an allowable cost? Property is being sold making a profit.

I've got my knickers-in-a-twist (turn of phrase only as I've been through the capital allowances and capital gains manuals, and I'm no clearer...