Purchasers of commercial property need to pay particular attention to the issue of capital allowances early on in the transaction. New rules came into force from 1st April 2014 meaning valuable capital allowances tax reliefs are now only allowed to purchasers if there has been a specific explicit statement to this effect in the transaction documents, in addition to the usual s198 or s199 election.  The changes were due to HMRC’s concern that capital allowance claims were being made in error by some purchasers, but this is still an area where tax benefits are being lost because people aren’t aware of how they should be claimed.


Although they cannot claim for depreciation in value, capital allowances can be claimed by companies in respect of capital expenditure on property features, including fixtures and plant and machinery.  These allowances are potentially very valuable as original purchasers can claim up to 100% for specified environmentally beneficial technologies, such as rainwater harvesting equipment. In the past, these allowances could be passed on to new purchasers of the property if the seller and purchaser agreed to make an election under s198 Capital Allowances Act 2001 (or s199 in the case of a lease) within two years of completion. This means a proportion of the purchase price is allocated to fixtures, and this value is the amount which the seller can bring into account as a disposal value, and on which the purchaser should be able to claim allowances.

New position

Whilst previously the parties to a transaction could deal with capital allowances at leisure as long as it was within 2 years of the completion date, it is now necessary to ‘pool’ the relevant expenditure at the time the seller owns the fixtures or plant, so if it has not been done prior to the sale it will be required in the sale documents in order to preserve the capital allowances for the buyer.

Pooling is in addition to the s198 or s199 election and simply means that the seller adds the expenditure to its capital allowance pool. Some sellers are not entitled to claim capital allowances (for example developers, pension funds and charities), and these new rules do not apply to them, but if a previous owner in the past was able to claim capital allowances, then a purchaser would still be able to claim if that past seller had pooled their expenditure at the relevant time.

Practical steps

As purchasers will not be able to claim capital allowances on acquired fixtures or plant unless the ‘pooling requirement’ has been met, it is essential that a confirmation or record of each expenditure pooled is provided by the seller prior to the sale. The s198/s199 elections continue to be mandatory.  This means that additional due diligence can be expected on the part of purchasers- the Commercial Property Standard Enquiries have been updated to include a question (enquiry 32) to extract the required details.  It is also wise for commercial property owners to get their accountants involved early on in the transaction, and certainly consider this aspect when agreeing heads of terms.

Eleanor Rattay is a Solicitor at BHW Solicitors in Leicester and regularly writes on commercial property issues. Eleanor can be contacted on 0116 281 6224 or by email at eleanor.rattay@bhwsolicitors.com.

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