Capital Allowance Pools – Requirements
The information below refers to the pooling requirements for immovable items of plant and machinery that are embedded within buildings.
When a property is sold, values for immovable/embedded property items should only be entered on a Section 198 election form. This discloses the value of the items included in the property sale value to HMRC. Any values for “movable” items of fixtures/plant (also known as chattels in property law) should not be included on the election form. A separate value for these items should be agreed upon and paid by the Purchaser.
If the sale of a property concerned includes a value for ‘fixtures & fittings‘ – Are these classed as fixed or movable items? This is important as the treatment for fixed and movable items is now very different.
The “fixed” items remain as part of the property valuation. Only the agreed value of these items should be shown on the Section 198 form.
Example – The Pool Requirements for the Sale of a Property since April 2014
For clarification purposes:
When a property is sold, the sale price should be reflected as follows:
- A value for the land and buildings. This value will also include the value of the fixed items of plant which are an integral part of the building (e.g., plumbing, electrical systems, fixtures & fittings, etc). These are generally referred to as chattels or immovable items.
- A value for the movable items of fixtures and fittings/plant and machinery. These items would typically be furniture, carpets, equipment, machinery, etc.
Accounting for fixtures and fittings:
Effectively for accounting tax purposes, the 2014 property rules created the need to keep records of two separate pools for fixtures and fittings:
- The normal fixtures and fittings pool for movable items of furniture, equipment and machinery, which will be depreciated annually as usual. For accounting purposes, these pools are the usual pools shown in the accounts for fixtures and fittings, plant and machinery, etc.
- A separate pool for the items described above, fixtures and fittings, which are an integral part of the building (immovable items).
This pool is included in the value of the land and building/property improvements, which is included in fixed assets. In addition, this pool needs to be kept separately as a memo for tax purposes only.
When a property is sold the base cost in the accounts is not adjusted. A Property Capital Allowance claim does not affect Capital Gain Tax calculations.
Section 198 Election details:
The 2014 pooling requirement for the sale of a property requires an election (Section 198) to transfer the value of the immovable items to the purchaser/new owner.
It is important to note that the values entered on the Section 198 election can be from as little as £1 up to a maximum of the tax written down values of the immovable items only. The values for the Fixtures and Fittings/Plant and Machinery pools in the accounts (i.e., movable fixtures/plant) SHOULD NOT be entered or included.
The amounts to be entered will typically consist of an amount for General Pool items and an amount for Special Rate Pool items. It is important to note that the Special Rate Pool does not always require a value, as may be not applicable.
Submission of Section 198 Election to HMRC
There is a two-year window to submit the election form to HMRC from the date the property transaction is completed.
The election needs to be signed by the Vendor and the Purchaser and attached to the next Tax Return submitted to HMRC.
It is necessary to submit a supporting list of items to certify the values entered on the Section 198 election. HMRC accepts a degree of amalgamation and the valuation can be summarised in the following categories for Special Rate Pool:
- Electrical systems (including a lighting system);
- Cold water systems
- Space or water heating systems, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system
- Lifts, escalators, and moving walkways
- External solar shading
Important note!
A Section 198 Election and the summary of items need to be submitted to HMRC by both the vendor and the purchaser.
It is imperative to submit the form within two years from the completion date to avoid both parties losing any allowances from a capital allowance claim.
For further information read our article ‘Property capital allowances explained’ and visit our ‘Section 198 Explained’ page.
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