Selling a commercial property can have several tax implications, and Capital Gains Tax is only part of the picture. If the property contains qualifying fixtures and fittings, Capital Allowances may also need to be considered before the sale goes ahead.
The two are separate areas of tax. Capital Gains Tax relates to the gain made when an asset is sold, while Capital Allowances provide tax relief on qualifying expenditure incurred on certain assets used in a business.
For commercial property owners, the Capital Allowances position can become particularly important when a building contains extensive plant, machinery or integral features. Reviewing this before a sale can help clarify what has already been claimed, what happens to qualifying fixtures on disposal and what information needs to be agreed with the buyer.
What is Capital Gains Tax?
Capital Gains Tax applies to the gain made when certain assets are sold or otherwise disposed of for more than their allowable cost.
For example, if a commercial property was bought for £500,000 and later sold for £750,000, the starting point would be a £250,000 gain. The actual taxable gain may be different once allowable costs, reliefs and other relevant factors have been taken into account.
The amount of Capital Gains Tax due depends on the circumstances of the person or business making the disposal. For individuals, the main Capital Gains Tax rates from 6 April 2026 are 18% and 24%, depending on taxable income and the circumstances of the gain. Business Asset Disposal Relief and Investors’ Relief are subject to their own conditions and rates.
Anyone planning to sell a commercial property should therefore consider the potential Capital Gains Tax position as part of the wider tax planning for the transaction.
How Do Capital Allowances Fit In?
Capital Allowances are different from Capital Gains Tax. They provide tax relief on qualifying expenditure incurred on certain assets used for business purposes.
A commercial property can contain a surprising number of items that may qualify. Depending on the property and the work carried out, these can include lighting, electrical systems, heating, air conditioning, lifts, fire and security systems, water installations, fitted kitchens and certain sanitaryware.
Some of these assets fall within the plant and machinery rules, while others may qualify as integral features.
The potential value of a claim can be particularly relevant where a property has been newly constructed, extensively refurbished or fitted out. Capital Allowances may have already been claimed during the period of ownership, but the treatment of qualifying fixtures needs to be considered again when the property is sold.
What Happens to Capital Allowances When a Commercial Property Is Sold?
A commercial property sale does not simply bring the Capital Allowances position to an end.
Where qualifying fixtures form part of the property, there are specific rules governing what happens when ownership changes. The value attributed to those fixtures can affect the seller’s disposal value and the purchaser’s ability to claim Capital Allowances.
This is why the Capital Allowances position should be dealt with during the sale process rather than left until after completion.
There may need to be an agreement between the buyer and seller about the value attributed to qualifying fixtures. The relevant history of the property and any previous Capital Allowances claims may also need to be established.
What Is a Section 198 Election?
A Section 198 election can be relevant where a commercial property containing qualifying fixtures is sold.
Under Section 198 of the Capital Allowances Act 2001, the buyer and seller can jointly elect to agree the amount attributed to qualifying fixtures in certain circumstances. This can establish the seller’s disposal value and the amount of qualifying expenditure available to the purchaser.
The election must be made in writing and contain the required information, including the amount agreed by the parties and sufficient details to identify the property and fixtures concerned.
The rules around elections are specific, so the Capital Allowances position should be reviewed before the sale is completed. It is much easier to address these matters while the buyer and seller are negotiating the transaction than after the property has changed hands.
Why Review Capital Allowances Before Selling?
Reviewing Capital Allowances before a commercial property sale can help answer some important questions:
- Have all qualifying fixtures and expenditure been identified?
- What Capital Allowances have already been claimed?
- Is there a previous Capital Allowances report or valuation?
- What needs to happen to qualifying fixtures as part of the sale?
- Is a Section 198 election required or appropriate?
- What information will the buyer need?
- Are there any outstanding opportunities to claim available relief before disposal?
These questions can be particularly relevant for properties with substantial fit-outs, specialist equipment, extensive electrical installations or significant refurbishment work.
A detailed review can also give the owner a clearer picture of the tax position before negotiations with a buyer get underway.
Common Capital Allowances Mistakes When Selling
Waiting Until After Completion
Leaving Capital Allowances until the property has already been sold can create unnecessary complications. Certain decisions and agreements may need to be made as part of the transaction, so it is sensible to address the position before contracts are exchanged.
Assuming Everything Has Already Been Identified
Previous tax returns and accounting records do not necessarily provide a complete picture of the qualifying fixtures within a building.
An accountant may have correctly dealt with the figures available to them, but identifying fixtures often requires a detailed assessment of the property itself. A specialist Capital Allowances survey can identify qualifying expenditure that may not be obvious from financial records alone.
Ignoring the Buyer’s Position
The Capital Allowances position matters to both sides of a commercial property transaction.
The seller needs to consider the disposal treatment of qualifying fixtures, while the buyer may want to understand what allowances will be available after completion. Agreeing the position early can help avoid uncertainty during the transaction.
Treating the Building as One Asset
For Capital Allowances purposes, a commercial property is not simply one indivisible asset.
Different elements of the building can have different tax treatments. Plant and machinery and integral features may qualify even though they form part of, or are attached to, the wider property.
This is why looking at the building in detail can be worthwhile when preparing for a sale.
Plan Your Capital Allowances Before the Sale
Capital Gains Tax and Capital Allowances deal with different aspects of commercial property taxation, but both can become relevant when a property is being sold.
The important point for property owners is timing. Capital Allowances should be considered before the transaction is completed, particularly where the property contains substantial qualifying fixtures or where previous claims need to be reviewed.
Checking the existing Capital Allowances position, identifying qualifying expenditure and considering whether a Section 198 election is needed can help ensure the relevant issues are dealt with as part of the sale rather than left until afterwards.
If you are planning to sell a commercial property, Eureka Capital Allowances can review your position and help identify qualifying expenditure that may otherwise be missed.
Contact Eureka Capital Allowance to discuss your Capital Allowances position before selling your commercial property.
