Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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If--

(a) capital expenditure is incurred on the construction of a building, and

(b) the relevant interest in the building has not been sold or, if it has been sold, it has been sold only after the first use of the building,

the capital expenditure is qualifying expenditure.

295 Purchase of unused building where developer not involved

(1) This section applies if--

(a) expenditure is incurred on the construction of a building,

(b) the relevant interest in the building is sold before the building is first used,

(d) section 296 (purchase of building which has been sold unused by developer) does not apply.

(2) The lesser of--

(a) the capital sum paid by the purchaser for the relevant interest, and

(b) the expenditure incurred on the construction of the building,

is qualifying expenditure.

(3) The qualifying expenditure is to be treated as incurred by the purchaser when the capital sum became payable.

(4) If the relevant interest is sold more than once before the building is first used, subsection (2) has effect only in relation to the last of those sales.

296 Purchase of building which has been sold unused by developer

(1) This section applies if--

(a) expenditure is incurred by a developer on the construction of a building, and

(b) the relevant interest in the building is sold by the developer in the course of the development trade before the building is first used.

(2) If--

(a) the sale of the relevant interest by the developer was the only sale of that interest before the building is used, and

(b) a capital sum is paid by the purchaser for the relevant interest,

the capital sum is qualifying expenditure.

(3) If--

(a) the sale by the developer was not the only sale before the building is used, and

(b) a capital sum is paid by the purchaser for the relevant interest on the last sale,

the lesser of that capital sum and the price paid for the relevant interest on its sale by the developer is qualifying expenditure.

(4) The qualifying expenditure is to be treated as incurred by the purchaser when the capital sum referred to in subsection (2)(b) or (3)(b) became payable.

297 Purchase of used building from developer

(1) This section applies if--

(a) expenditure is incurred by a developer on the construction of a building, and

(b) the relevant interest is sold by the developer in the course of the development trade after the building has been used.

(2) This Part has effect in relation to the person to whom the relevant interest is sold as if--

(a) the expenditure on the construction of the building had been qualifying expenditure,

(b) all appropriate writing-down allowances had been made to the developer, and

(3) This section is subject to sections 301 and 303 (purchase of building in enterprise zone within 2 years of first use).

Qualifying enterprise zone expenditure

298 The time limit for qualifying enterprise zone expenditure

(1) For the purposes of sections 299 to 304, the time limit for expenditure on the construction of a building on a site in an enterprise zone is--

(a) 10 years after the site was first included in the zone, or

(b) if the expenditure is incurred under a contract entered into within those 10 years, 20 years after the site was first included in the zone.

(2) In those sections "EZ building" is short for "building on a site in an enterprise zone".

(3) In this Part "enterprise zone" means an area designated as such by an order--

(a) made by the Secretary of State under powers conferred by Schedule 32 to the Local Government, Planning and Land Act 1980 (c. 65), or

(b) in Northern Ireland, made by the Department of the Environment under Article 7 of the Enterprise Zones (Northern Ireland) Order 1981 (S.I.1981/607 (N.I.15)).

299 Application of section 294

If--

(a) capital expenditure is incurred on the construction of an EZ building, and

(b) the expenditure is incurred within the time limit,

the qualifying expenditure given by section 294 is qualifying enterprise zone expenditure.

300 Application of sections 295 and 296

If--

(a) expenditure is incurred on the construction of an EZ building, and

(b) all the expenditure is incurred within the time limit,

any qualifying expenditure given by sections 295 and 296 in relation to that expenditure is qualifying enterprise zone expenditure.

301 Purchase of building within 2 years of first use

(1) This section applies if--

(a) expenditure is incurred on the construction of an EZ building,

(b) all the expenditure is incurred within the time limit,

(i) after the building has been used, but

(ii) within the period of 2 years beginning with the date on which the building was first used, and

(d) that sale ("the relevant sale") is the first sale in that period after the building has been used.

(2) If this section applies--

(a) any balancing adjustment which falls to be made on the occasion of the relevant sale is to be made, and

(b) the residue of qualifying expenditure immediately after the relevant sale is to be disregarded for the purposes of this Part.

(3) If a capital sum is paid by the purchaser for the relevant interest on the relevant sale--

(a) the purchaser is to be treated as having incurred qualifying expenditure that is qualifying enterprise zone expenditure of an amount given in subsection (4), (6) or (7), and

(b) in relation to that qualifying enterprise zone expenditure, this Part applies as if the building had not been used before the date of the relevant sale.

(4) Unless subsection (6) or (7) applies, the amount of the qualifying enterprise zone expenditure is the lesser of--

(a) the capital sum paid by the purchaser for the relevant interest on the relevant sale, and

(b) the expenditure incurred on the construction of the building.

(5) Subsections (6) and (7) apply if--

(a) the expenditure incurred on the construction of the EZ building was incurred by a developer, and

(b) the relevant interest in the building has been sold by the developer in the course of the development trade.

(6) If the sale by the developer is the relevant sale, the amount of the qualifying enterprise zone expenditure is the capital sum paid by the purchaser for the relevant interest on that sale.

(7) If the sale by the developer is not the relevant sale, the amount of the qualifying enterprise zone expenditure is the lesser of--

(a) the capital sum paid by the purchaser for the relevant interest on the relevant sale, and

(b) the price paid for the relevant interest on its sale by the developer.

(8) The qualifying expenditure is to be treated as incurred when the capital sum on the relevant sale became payable.

Part of expenditure within time limit for qualifying enterprise zone expenditure

302 Qualifying enterprise zone expenditure where section 295 or 296 applies

(1) This section applies if--

(a) expenditure is incurred on the construction of an EZ building,

(b) only a part of the expenditure is incurred within the time limit, and

(i) section 295(1) (purchase of unused building where developer not involved), or

(ii) section 296(1) (purchase of building which has been sold unused by developer).

(2) Only a part of the qualifying expenditure given by section 295(2) or 296(2) or (3) (as the case may be) is qualifying enterprise zone expenditure.

(3) The part of the qualifying expenditure that is qualifying enterprise zone expenditure is--

---

where--

QE is the qualifying expenditure,
E is the part of the expenditure on the construction of the EZ building that is incurred within the time limit, and
T is the total expenditure on the construction of the building.

303 Purchase of building within 2 years of first use

(1) This section applies if--

(a) expenditure is incurred on the construction of an EZ building,

(b) only a part of the expenditure is incurred within the time limit,

(i) after the building has been used, but

(ii) within the period of 2 years beginning with the date on which the building was first used, and

(d) that sale ("the relevant sale") is the first sale in that period after the building has been used.

(2) If this section applies--

(a) any balancing adjustment which falls to be made on the occasion of the relevant sale is to be made, and

(b) the residue of qualifying expenditure immediately after the relevant sale is to be disregarded for the purposes of this Part.

(3) If a capital sum is paid by the purchaser for the relevant interest on the relevant sale--

(a) the purchaser is to be treated as having incurred qualifying expenditure--

(i) part of which is qualifying enterprise zone expenditure ("Z"), and

(ii) part of which is not ("N"), and

(b) in relation to that qualifying expenditure, this Part applies as if the building had not been used before the date of the relevant sale.

(4) Unless section 304 (cases where developer involved) applies--

---

and

N = L - Z

where--

L is the lesser of--
- (a) the capital sum paid for the relevant interest on the relevant sale, and
- (b) the expenditure incurred on the construction of the building,
E is the part of the expenditure on the construction of the EZ building that is incurred within the time limit, and
T is the total expenditure on the construction of the building.

(5) Any qualifying expenditure arising under this section or section 304 is to be treated as incurred when the capital sum on the relevant sale became payable.

304 Application of section 303 where developer involved

(1) This section applies if section 303 applies but--

(a) the expenditure on the construction of the building was incurred by a developer, and

(b) the relevant interest in the building has been sold by the developer in the course of the development trade;

and in this section Z, N, E and T have the same meaning as in section 303.

(2) If the sale by the developer is the relevant sale--

---

and

---

where--

C is the capital sum paid for the relevant interest by the purchaser, and
L is the lesser of--
- (a) the capital sum paid for the relevant interest on the relevant sale, and
- (b) the expenditure incurred on the construction of the building.

(3) If the sale by the developer is not the relevant sale--

---

and

N = D - Z

where D is the lesser of--

(a) the price paid for the relevant interest on its sale by the developer, and
(b) the capital sum paid for the relevant interest on the relevant sale.

Chapter 5 Initial allowances

305 Initial allowances for qualifying enterprise zone expenditure

(1) A person who has incurred qualifying enterprise zone expenditure is entitled to an initial allowance in respect of the expenditure if the building on which the expenditure is incurred is to be an industrial building--

(a) occupied by that person or a qualifying lessee, or

(b) used by a qualifying licensee.

(2) In this section--

"qualifying lessee" means a lessee under a lease to which the relevant interest is reversionary, and
"qualifying licensee" means a licensee of--
(a)
the person incurring the qualifying expenditure, or
(b)
a lessee of the person incurring the qualifying expenditure.

306 Amount of initial allowance and period for which allowance made

(1) The amount of the initial allowance is 100% of the qualifying enterprise zone expenditure.

(2) A person claiming an initial allowance under this section may require the allowance to be reduced to a specified amount.

(3) The initial allowance is made for the chargeable period in which the qualifying expenditure is incurred.

(4) For the purposes of subsection (3), expenditure incurred for the purposes of a trade, profession or vocation by a person about to carry it on is to be treated as if it had been incurred on the first day on which the person carries on the trade, profession or vocation.

307 Building not industrial building when first used etc.

(1) No initial allowance is to be made under section 305 if, when the building is first used, it is not an industrial building.

(2) An initial allowance which has been made in respect of a building which is to be an industrial building is to be withdrawn if, when the building is first used, it is not an industrial building.

(3) An initial allowance which has been made in respect of a building which has not been used is to be withdrawn if the person to whom the allowance was made sells the relevant interest before the building is first used.

(4) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this section.

308 Grants affecting entitlement to initial allowances

(1) No initial allowance is to be made in respect of expenditure to the extent that it is taken into account for the purposes of a relevant grant or relevant payment made towards that expenditure.

(2) A grant or payment is relevant if it is--

(a) a grant made under section 32, 34 or 56(1) of the Transport Act 1968 (c. 73),

(b) a payment made under section 56(2) of the Transport Act 1968, or

which is declared by the Treasury by order to be relevant for the purposes of the withholding of initial allowances.

(3) If a relevant grant or relevant payment towards the expenditure is made after the making of an initial allowance, the allowance is to be withdrawn to that extent.

(4) If the amount of the grant or payment is repaid by the grantee to the grantor, in whole or in part, the grant or payment is treated, to that extent, as never having been made.

(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (3) or (4).

(6) Any such assessment or adjustment is not out of time if it is made within 3 years of the end of the chargeable period in which the grant, payment or repayment was made.

Chapter 6 Writing-down allowances

309 Entitlement to writing-down allowance

(1) A person is entitled to a writing-down allowance for a chargeable period if--

(a) qualifying expenditure has been incurred on a building,

(b) at the end of that chargeable period, the person is entitled to the relevant interest in the building in relation to that expenditure, and

(2) A person claiming a writing-down allowance may require the allowance to be reduced to a specified amount.

310 Basic rule for calculating amount of allowance

(1) The basic rule is that the writing-down allowance for a chargeable period is--

(a) in the case of qualifying enterprise zone expenditure, 25% of the expenditure, and

(b) in the case of other qualifying expenditure, 4% of the expenditure.

(2) The allowance is proportionately increased or reduced if the chargeable period is more or less than a year.

(3) This basic rule does not apply if section 311 applies.

311 Calculation of allowance after sale of relevant interest

(1) If a relevant event occurs, the writing-down allowance for any chargeable period ending after the event is--

---

where--

RQE is the amount of the residue of qualifying expenditure immediately after the event,
A is the length of the chargeable period, and
B is the length of the period from the date of the event to the end of the period of 25 years beginning with the day on which the building was first used.

(2) On any later relevant event, the writing-down allowance is further adjusted in accordance with this section.

(3) "Relevant event" means--

(a) a sale of the relevant interest in the building which is a balancing event to which section 314 applies, or

(b) an event which is a relevant event for the purposes of this section under section 347 or 349 (additional VAT liabilities and rebates).

312 Allowance limited to residue of qualifying expenditure

(1) The amount of the writing-down allowance for a chargeable period is limited to the residue of qualifying expenditure.

(2) For this purpose the residue is ascertained immediately before writing off the writing-down allowance at the end of the chargeable period.

313 Meaning of "the residue of qualifying expenditure"

The residue of qualifying expenditure is the qualifying expenditure that has not yet been written off in accordance with Chapter 8.

Chapter 7 Balancing adjustments

General

314 When balancing adjustments are made

(1) A balancing adjustment is made if--

(a) qualifying expenditure has been incurred on a building, and

(b) a balancing event occurs while the building is an industrial building or after it has ceased to be an industrial building.

(2) A balancing adjustment is either a balancing allowance or a balancing charge and is made for the chargeable period in which the balancing event occurs.

(3) A balancing allowance or balancing charge is made to or on the person entitled to the relevant interest in the building immediately before the balancing event.

(4) No balancing adjustment is made if the balancing event occurs more than 25 years after the building was first used.

(5) If more than one balancing event within section 315(1) occurs during a period when the building is not an industrial building, a balancing adjustment is made only on the first of them.

315 Main balancing events

(1) The following are balancing events for the purposes of this Part--

(a) the relevant interest in the building is sold;

(b) if the relevant interest is a lease, the lease ends otherwise than on the person entitled to it acquiring the interest reversionary on it;

(d) the building ceases altogether to be used (without being demolished or destroyed);

(e) if the relevant interest depends on the duration of a foreign concession, the concession ends.

(2) "Foreign concession" means a right or privilege granted by the government of, or any municipality or other authority in, a territory outside the United Kingdom.

(3) Other balancing events are provided for by--

section 328 (realisation of capital value where site of building is in enterprise zone);
section 343 (ending of highway concession);
section 350 (additional VAT rebates and balancing adjustments);

and a balancing event under this section may also occur as a result of section 317 (hotel not qualifying hotel for 2 years).

316 Proceeds from main balancing events

(1) References in this Part to the proceeds from a balancing event within section 315(1) are to the amounts received or receivable in connection with the event, as shown in the Table--

Table

Balancing events and proceeds

1. Balancing event	2. Proceeds from event
1. The sale of the relevant interest.	The net proceeds of the sale.
2. The demolition or destruction of the building.	The net amount received for the remains of the building, together with-- (a) any insurance money received in respect of the demolition or destruction, and (b) any other compensation of any description so received, so far as it consists of capital sums.
3. The building ceases altogether to be used.	Any compensation of any description received in respect of the event, so far as it consists of capital sums.
4. A foreign concession ends.	Any compensation payable in respect of the relevant interest.

(2) The amounts referred to in column 2 of the Table are those received or receivable by the person whose entitlement to a balancing allowance or liability to a balancing charge is in question.

317 Balancing event where hotel not qualifying hotel for 2 years

(1) This section applies if--

(a) a building ceases to be a qualifying hotel otherwise than on the occurrence of a balancing event which is within section 315(1), and

(b) after the building ceases to be a qualifying hotel, a period of 2 years elapses--

(i) in which it is not a qualifying hotel, and

(ii) without the occurrence of a balancing event.

(2) This Part has effect as if--

(a) the relevant interest in the building had been sold at the end of the 2 year period, and

(b) the net proceeds of the sale were equal to the market value of that interest.

(3) Subsection (2) does not affect section 285 (building treated as industrial building during period of temporary disuse).

(4) But a building is not to be treated under section 285(b) as continuing to be a qualifying hotel for more than 2 years after the end of the chargeable period in which it falls temporarily out of use.

(5) This section does not apply to qualifying enterprise zone expenditure.

Calculation of balancing adjustments

318 Building an industrial building etc. throughout

(1) This section provides for balancing adjustments where the building was--

(a) an industrial building, or

(b) used for research and development,

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