Following on from our last blog we are going to be looking further at what could distort the tax computations in relation to a S198 election.
The opening line of S.198 CA2001 reads as follows “this section applies if the disposal value of a fixture is required to be brought into account…” s.198(1). This clearly indicates that there is a statutory obligation to only cover items that have been claimed on previously. If you think about it this make sense, otherwise you would be transferring a tax asset to the purchaser that hasn’t been substantiated or even in extreme circumstance exists at all, even if it is only a proportion of a nominal value.
We will often see S198s that simply say “all fixtures and fittings in the building”. This clearly goes beyond amalgamating at an elementary level, implies a perfect claim by the vendors and provides no allocation between main pool and special rate items (integral features). Furthermore this may then cover items the vendor may not even have been legally able to claim on (expenditure on integral features pre 2008)! In short this is not a particularly robust way to identify the P&M in questions, not to mention quite lazy!
Another common mistake is to simply attach a list of every item that could possibly exist in a commercial or industrial building. Straight away this means that the election can fail by transferring value on assets that the vendor hasn’t claimed on but can also lead to quite ridiculous outcomes with items that couldn’t possibly be in the building e.g. lifts in a one story buildings, lathes in care homes etc.
The making of a robust elections is crucial to both parties and can be a mine field for the uninitiated. If you would like to talk through these points further or perhaps discuss a live transaction please don’t hesitate to get in contact or visit us at www.STaxUK.com