Capital Allowances Calculator: Section 198 Elections & Fixtures

2026-09-28 tax, commercial, property

Buying a commercial property without auditing its fixtures is the property equivalent of buying a secondhand car, popping the bonnet, and completely ignoring the engine. You might admire the bricks, the high street footfall, and the neat double-glazed facade, but the real tax efficiency is humming away inside the pipework, the cabling, and the air conditioning units.

In the UK commercial property sphere, capital allowances on embedded fixtures represent one of the most lucrative—and routinely botched—tax reliefs available. Miss them at the point of exchange, and your tax deduction evaporates into HMRC's consolidated fund forever.

Here is the practical, numerate guide to working out plant and machinery allowances, structuring a Section 198 election, and running the numbers before you sign.

What Is a Section 198 Election?

A Section 198 election is a joint, binding agreement between the buyer and the seller under Section 198 of the Capital Allowances Act 2001 (CAA 2001). It fixes the proportion of the property's overall purchase price allocated to fixtures and integral features for capital allowances purposes.


+---------------------------------------------------------------+
|                    Commercial Property Deal                   |
|                        Purchase Price                         |
+-------------------------------+-------------------------------+
                                |
        +-----------------------+-----------------------+
        |                                               |
        v                                               v
+-------------------------------+       +-------------------------------+
|     Land & Building Core      |       |      Embedded Fixtures        |
|  (No Plant/Machinery Relief)  |       |  (S.198 Election Allocates    |
|   Non-qualifying structural   |       |   value: Main & Special Pool) |
+-------------------------------+       +-------------------------------+

The election prevents double-claiming and stops both sides from submitting contradictory figures to HMRC. Whatever figure you and the vendor agree on becomes the vendor's disposal value and your acquisition value.

The Two Capital Allowance Pools for Fixtures

When you acquire a commercial building—whether an office, retail unit, light industrial shed, or a furnished holiday let (FHL rules permitting)—embedded items fall into two statutory pools:

1. Main Rate Pool (18% writing down allowance per annum): Lifts, fire alarms, sanitary ware, demountable partitions, and general plant.

2. Special Rate Pool (6% writing down allowance per annum): Integral features defined under Section 33A CAA 2001. This covers electrical systems (power, lighting), cold water systems, space and water heating, powered ventilation, and external solar shading.


Annual Writing Down Tax Saving Formula:
Tax Saved = Pool Balance × Writing Down Rate (18% or 6%) × Applicable Tax Rate

For a corporate landlord facing the 25% main corporation tax rate, writing down a £100,000 Special Rate balance in Year 1 yields:

$\text{Tax Deduction} = £100,000 \times 6\% = £6,000$

$\text{Cash Saved} = £6,000 \times 25\% = £1,500$

While 6% feels modest on day one, pooled allowances are calculated on a reducing balance basis every single year until exhausted or disposed of.

The Section 198 Tug-of-War: £1 vs Unclaimed Value

The Section 198 value must reflect reality, but it cannot exceed the amount the vendor originally spent on the fixtures, nor can it exceed the total purchase price. In practice, negotiations usually split into two scenarios debated endlessly across commercial investor forums:

Deal Feature	The Nominal "£1" Election	The Apportioned Market Value Election
Typical Context	Vendor previously claimed allowances and wants zero clawback (balancing charge).	Vendor never claimed, or buyer holds superior leverage in heads of terms.
Buyer Impact	Buyer inherits a £1 tax base; cannot claim historical fixture allowances.	Buyer claims writing down allowances on the agreed figure.
Vendor Impact	No balancing charge triggered; retains historical tax savings.	Vendor may face a balancing charge if the election exceeds tax written-down value.
HMRC Scrutiny	Very low, standard default in commercial boilerplate contracts.	Moderate; requires justification via surveying and apportionment methodology.

The £1 Trap

Property Twitter and YouTube case studies are full of investors celebrating a "cheap" purchase, only to discover their conveyancer signed a standard CPSE (Commercial Property Standard Enquiries) response agreeing to a £1 Section 198 election without asking questions.

If the vendor never claimed allowances, signing a £1 election throws away legitimate tax relief. Always insist on seeing the vendor's tax history regarding capital allowances before executing contracts.

Capital Allowances Calculator: Worked Example

Assume you acquire a freehold office building for £1,200,000. The vendor previously held the property for several years, pooled the integral features, and agrees to an apportioned election based on remaining tax written-down values.

Purchase Price: £1,200,000
Land Value (Non-qualifying): £400,000
Building Shell (Non-qualifying core): £500,000
Identified Fixtures (Main Pool - 18%): £100,000
Identified Fixtures (Special Rate Pool - 6%): £200,000

Assuming the property is held inside a limited company paying the 25% corporation tax rate:


Total Qualifying Expenditure: £300,000

Year 1 Main Pool Writing Down:   £100,000 × 18% = £18,000
Year 1 Special Rate Writing Down: £200,000 × 6%  = £12,000
Total Year 1 Corporation Tax Deduction:            £30,000

Direct Cash Corporation Tax Saved in Year 1:
£30,000 × 25% = £7,500

Over a five-year holding period, cumulative allowances on this pool provide tens of thousands in sheltered rental profit.

The Mandatory 2-Year Deadline and Past-Owner Rules

Since the Finance Act 2012 came into force, two strict statutory conditions govern fixtures claims on second-hand properties:

The Pooling Requirement: The previous owner must have pooled the expenditure in a tax return before selling.
The Fixed Value Requirement: The value must be fixed within two years of the acquisition date—almost always via a Section 198 election or, failing that, an application to the First-tier Tribunal.

If the 24-month clock runs out and no election is submitted to HMRC, the allowances are permanently lost to all future owners of that building.

Quick Implementation Checklist

Review the CPSE replies: Ensure question 32 (Capital Allowances) is answered comprehensively, not with "refer to accounts."
Establish vendor status: Is the seller a tax-paying entity, a charity, a pension fund, or a property developer holding stock? If the seller is a non-taxpayer (like a local council), different rules apply, and you may be able to make a direct apportioned claim without a Section 198 restriction.
Engage a capital allowances surveyor early: Valuing plant inside mechanical and electrical installations requires specialist quantity surveying, not just back-of-the-envelope guesswork.

Disclaimer: This guide is for educational and illustrative purposes only and does not constitute regulated financial, legal, or tax advice. Capital allowances legislation contains complex anti-avoidance provisions. Always consult a qualified tax advisor or specialist capital allowances surveyor regarding specific commercial transactions.

Guidance only. BrickCrunch provides general information, not financial, tax or legal advice. Our calculators give estimates only, using rates we verify against gov.uk — always confirm figures and your own position before acting.