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When a commercial property is sold, part of the selling price will include the value of fixtures which have qualified for capital allowances in the seller’s business. If the proceeds of sale on those assets exceed the written down value of the ‘pool’ there will be a ‘balancing charge’ which is treated as a negative allowance and capital allowances previously claimed will be clawed back.

A ‘s198 claim’ can be made between the two parties that enables them to agree a value for capital allowances purposes only, not exceeding the original purchase price of the assets. Post April 2012 a s198 claim to submit to HMRC will effectively be mandatory in most cases.

The seller will want to set a value as low as possible to maximise allowances but the purchaser will want to agree a value that enables him to make some amount of claim carrying forward.

Example:
Steve sells an industrial unit to Fred. He originally purchased it in 2007 for £250,000 and the agreed price is £300,000. Steve has claimed capital allowances on air conditioning and security systems costing £50,000. If the written down value of the assets was £20,000 and the proceeds value restricted to £50,000, £30,000 allowances that Steve has previously claimed will be ‘clawed’ back.

If the value agreed under the election is £100, Steve will be able to claim a balancing allowance on sale of £19,900 but Fred will only be able to claim £100 going forward.