When a commercial property changes hands, the purchase price is rarely just bricks and mortar. Embedded within the building are fixtures, fittings, and integral features, items that may qualify for capital allowances and allow the buyer to reduce their taxable profits. Yet despite representing a potentially significant tax relief, these allowances are routinely overlooked, mishandled, or lost entirely during the conveyancing process.
What Are Capital Allowances on Commercial Property?
Capital allowances are a form of tax relief that allows businesses and property investors to deduct the cost of qualifying assets from their taxable profits. For commercial property, this typically applies to plant and machinery embedded within the building; things such as heating systems, air conditioning, electrical installations, lighting, lifts, cold water systems, and security equipment. These items fall under two broad categories for allowance purposes: plant and machinery, which qualifies for the main pool at an 18% writing-down allowance, and integral features, which sit in the special rate pool at 6% per annum.
A large portion of a commercial property’s purchase price can relate to qualifying assets. Industry specialists suggest that between 15% and 45% of the acquisition cost may qualify, and the figure can be considerably higher for fitted-out offices, hotels, or specialist business premises. For buyers paying corporation tax or income tax on trading or property profits, the savings can be material. At CMA Accountancy, the team works with commercial property buyers and sellers to identify and quantify exactly what qualifies, ensuring clients do not leave allowances on the table.
The Section 198 Election: A Critical Mechanism
The central issue in any commercial property transaction is the Section 198 election. This is a formal, joint election made between the buyer and seller under the Capital Allowances Act 2001. Its purpose is to fix the value at which qualifying fixtures transfer between the parties for capital allowances purposes. Without it, the consequences for the buyer can be severe.
As specialists at Westlock Partners have noted, the Section 198 election “is not a formality; it is the legal mechanism that determines who retains entitlement to claim future allowances. Without it, the buyer may be permanently barred from claiming allowances on those fixtures, regardless of cost or use.”
The election must be submitted to HMRC in writing, jointly by both parties, and within two years of completion. Once made, it is permanent and cannot be revisited, which is why accuracy at the outset is so important. The agreed value must be “just and reasonable” and cannot exceed the original value claimed by the seller, nor the overall apportioned sale price of the fixtures.
Why the Value in the Election Matters So Much
The election does not simply confirm that allowances exist, it determines how much the buyer can actually claim. Buyers naturally want the highest possible value assigned to qualifying fixtures, as this maximises the allowances available to them going forward. Sellers, by contrast, typically prefer the lowest value, as they want to retain the benefit of allowances already claimed and avoid any risk of balancing charges on disposal.
In practice, some elections are agreed at £1 or another nominal amount without proper analysis. This is a significant mistake. As CPA Tax have observed, “some agreements fix the value at £1 or another minimal amount without proper analysis, this means the buyer restricts their own capital allowances claim.” A properly negotiated election, supported by a specialist valuation, can make the difference between a meaningful tax relief and one that is effectively worthless.
The Mandatory Pooling Requirement
Since April 2014, sellers have been required to pool qualifying expenditure before completing a sale, even if they have not previously claimed capital allowances. This is known as the mandatory pooling requirement, introduced under the Finance Act 2012. If the seller has claimed allowances on fixtures but fails to pool that expenditure and enter into a Section 198 election, the buyer receives nothing, the seller retains the capital allowances, and the opportunity is permanently lost to all future owners of the property.
This rule catches many buyers and sellers off guard, particularly where a property has changed hands several times or where the seller is a charity, pension fund, or other non-taxable entity. Even in those cases, an election remains important to protect the position of the buyer and any subsequent purchaser.
Common Pitfalls and How to Avoid Them
Errors in this area are widespread. BHP Chartered Accountants identify several common traps, including “omitting the election entirely, especially in transactions where fixtures are not separately identified; incorrectly valuing fixtures, either exceeding the seller’s original claim or misallocating the sale price; and missing the two-year deadline, which is strictly enforced by HMRC unless a tribunal is involved.”
Raising the issue after exchange or completion severely limits the options available. If no election is made at all, and the seller had previously claimed allowances, HMRC may apply a default value on a “just and reasonable” basis — an outcome that is both uncertain and typically unfavourable. The only alternative route is an application to the First-tier Tribunal (Tax), which is costly and time-consuming.
As one industry commentator has summarised, “capital allowances should be addressed alongside valuation, legal structuring, and financing — never as an afterthought.” CMA Accountancy advises clients to raise capital allowances at the very start of any transaction — ideally before heads of terms are agreed — so that the right questions are asked of the seller and the election can be structured to achieve the best possible outcome.
What Both Sides Need to Do
Both buyers and sellers need specialist advice before completing a commercial property transaction. For the buyer, this means instructing a capital allowances specialist to review the property, identify qualifying fixtures, and negotiate an appropriate election value. For the seller, it means ensuring that qualifying expenditure has been properly pooled, that historical claims are correctly documented, and that the disposal value is set at a level that avoids any unexpected tax consequences.
The Commercial Property Standard Enquiries (CPSE) form, used in conveyancing, includes specific questions about capital allowances and prior claims. The answers to these enquiries, alongside the purchase contract and any available fixed asset records, form the basis on which a specialist can assess the position and structure the election correctly. The team at CMA Accountancy has the expertise to review this documentation, work alongside solicitors and surveyors, and ensure that the election is both valid and commercially optimised for both parties.
The Broader Relief Picture
Capital allowances on commercial property do not operate in isolation. The Annual Investment Allowance, currently set at £1 million, allows businesses to deduct 100% of qualifying expenditure in the year it is incurred, subject to limits. From January 2026, a new 40% first-year allowance on main rate plant and machinery fixtures was introduced following the 2025 Autumn Budget, available to all businesses including sole traders. Separately, the Structures and Buildings Allowance provides relief on the structural cost of constructing or renovating commercial buildings at 3% per annum on a straight-line basis over 33⅓ years, though it operates independently of capital allowances on fixtures and cannot overlap with them.
How CMA Accountancy Can Help
Capital allowances on commercial property are a specialist area, and the consequences of getting them wrong can be permanent. CMA Accountancy has the experience and technical knowledge to guide buyers and sellers through the process from start to finish — from identifying qualifying assets and reviewing the seller’s tax history, to negotiating the Section 198 election and submitting a compliant claim to HMRC. Whether you are acquiring your first commercial premises or managing a sizeable property portfolio, CMA Accountancy can help you protect and maximise the tax reliefs available to you. Taking early advice costs far less than losing allowances that can never be recovered.
The Bottom Line
Capital allowances on commercial property represent one of the most effective tax reliefs available to UK businesses and property investors, yet they remain one of the most frequently missed. The Section 198 election sits at the heart of every qualifying transaction, and getting it right demands early engagement, proper analysis, and coordinated advice from legal, tax, and surveying professionals. Buyers who address this at the outset can secure a genuine and lasting improvement to their tax position. Those who leave it too late, or who accept a poorly constructed election, may find the opportunity is gone for good.