Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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Part 9 Dredging allowances

Qualifying expenditure on dredging, etc.

484 Dredging allowances

(1) Allowances are available under this Part if a person carries on a qualifying trade and qualifying expenditure has been incurred on dredging.

(2) In this Part "qualifying trade" means a trade or undertaking the whole or part of which--

(a) consists of the maintenance or improvement of the navigation of a harbour, estuary or waterway, or

(b) is of a kind listed in Table A or B in section 274 (meaning of qualifying trade for purposes of industrial buildings allowances).

(3) "Dredging" does not include anything done otherwise than in the interests of navigation.

(4) Subject to subsection (3), "dredging" includes--

(a) the removal of anything forming part of, or projecting from the bed of, the sea or any inland water--

(i) by whatever means it is removed, and

(ii) even if, at the time of removal, it is wholly or partly above water, and

(b) the widening of an inland waterway.

485 Qualifying expenditure

(1) Expenditure on dredging is qualifying expenditure if--

(a) it is capital expenditure,

(b) it is incurred for the purposes of a qualifying trade by the person carrying on the trade, and

(c) if the person does not carry on a qualifying trade within section 484(2)(a), the dredging is for the benefit of vessels coming to, leaving or using a dock or other premises occupied by the person for the purposes of the qualifying trade.

(2) If capital expenditure is incurred--

(a) partly for the purposes of a qualifying trade, and

(b) partly for other purposes,

the qualifying expenditure is the part of the capital expenditure that, on a just and reasonable apportionment, is referable to the purposes of the qualifying trade.

(3) If part only of a trade or undertaking is within section 484(2), subsection (2) of this section applies as if--

(a) the part which is within section 484(2), and

(b) the part which is not,

were separate trades.

486 Pre-trading expenditure of qualifying trades, etc.

(1) If a person incurs capital expenditure with a view to carrying on a trade or a part of a trade, this Part applies as if the expenditure were incurred by the person on the first day on which the trade or part of the trade is carried on.

(2) If a person incurs capital expenditure--

(a) in connection with a dock or other premises, and

(b) with a view to occupying the dock or premises for the purposes of a qualifying trade which is not a qualifying trade within section 484(2)(a),

this Part applies as if the expenditure were incurred by the person when he first occupies the dock or premises for the purposes of the qualifying trade.

Writing-down and balancing allowances

487 Writing-down allowances

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

(a) qualifying expenditure has been incurred on dredging,

(b) at any time during the chargeable period, the person is carrying on the qualifying trade for the purposes of which the qualifying expenditure was incurred, and

(2) The writing-down period, in relation to qualifying expenditure incurred by a person, is 25 years beginning with the first day of the chargeable period of that person in which the qualifying expenditure was incurred.

(3) The amount of the writing-down allowance is 4% of the qualifying expenditure.

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

(5) The total amount of any writing-down allowances made in respect of any qualifying expenditure, whether to the same or different persons, must not exceed the amount of the expenditure.

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

(7) A person is not entitled to a writing-down allowance for the chargeable period in which a balancing allowance is made to him in respect of the qualifying expenditure.

488 Balancing allowances

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

(a) qualifying expenditure has been incurred on dredging,

(b) in that chargeable period, the qualifying trade for the purposes of which the expenditure was incurred has been--

(i) permanently discontinued, or

(ii) sold,

(d) the amount of the expenditure exceeds the amount of the allowances previously made in respect of it, whether to the same or different persons.

(2) The amount of the balancing allowance is the amount of the difference.

(3) For the purposes of subsection (1)--

(a) the permanent discontinuance of a trade does not include an event treated as a permanent discontinuance under section 113(1) or 337(1) of ICTA (change in persons carrying on a trade etc. and effect of company ceasing to trade etc.), and

(b) a sale does not include a sale which is within subsection (4) or (5).

(4) A sale is within this subsection if any of the following conditions is met--

(a) the buyer is a body of persons over whom the seller has control;

(b) the seller is a body of persons over whom the buyer has control;

(d) the seller and the buyer are connected persons.

In this subsection "body of persons" includes a partnership.

(5) A sale is within this subsection if it appears that the sole or main benefit which might be expected to accrue to the parties, or any of them, from--

(a) the sale, or

(b) transactions of which the sale is one,

is the obtaining of a tax advantage under any of the provisions of this Act apart from Part 2 (plant and machinery allowances).

Giving effect to allowances

489 Giving effect to allowances

An allowance to which a person is entitled under this Part is to be given effect in calculating the profits of that person's trade, by treating the allowance as an expense of the trade.

Part 10 Assured tenancy allowances

Chapter 1 Introduction

490 Assured tenancy allowances

(1) Allowances are available under this Part if qualifying expenditure has been incurred on a building which consists of or includes a qualifying dwelling-house.

(2) A dwelling house is not a qualifying dwelling-house unless--

(a) it is let on a tenancy which is for the time being an assured tenancy, or

(b) it has been let on an assured tenancy and the conditions in subsection (4) are met.

(3) "Assured tenancy" means--

(a) an assured tenancy within the meaning of section 56 of the Housing Act 1980 (c. 51), or

(b) an assured tenancy (but not an assured shorthold tenancy) for the purposes of the Housing Act 1988 (c. 50).

(4) The conditions referred to in subsection (2)(b) are that--

(a) the dwelling-house is for the time being subject to a regulated tenancy or a housing association tenancy, and

(b) the landlord under the tenancy is an approved body or was an approved body but has ceased to be such for any reason.

(5) In subsection (4) "regulated tenancy" and "housing association tenancy" have the same meaning as in the Rent Act 1977 (c. 42).

(6) Further requirements that have to be met for a dwelling-house to be a qualifying dwelling-house are given in sections 504 and 505; and subsection (2) is subject to section 506(2)(b) (temporary disuse of dwelling-house ignored).

491 Allowances available in relation to old expenditure only

(1) Allowances under this Part are not available unless--

(a) the qualifying expenditure was incurred after 9th March 1982 and before 1st April 1992, and

(b) if the tenancy is an assured tenancy for the purposes of the Housing Act 1988, expenditure has been incurred which is within subsection (2) or (3).

(2) Expenditure is within this subsection if it was incurred by--

(a) a company which was an approved body on 15th March 1988, or

(b) a person who sold the relevant interest in the building, before any of the dwelling-houses comprised in it were used, to a company which was an approved body on 15th March 1988,

and either it was incurred before 15th March 1988 or it consists of the payment of sums under a contract entered into before that date.

(3) Expenditure is within this subsection if it was incurred by a company which--

(a) was an approved body on 15th March 1988, and

(b) bought or contracted to buy the relevant interest in the building before that date.

492 Meaning of "approved body"

In this Part "approved body" has the meaning given in section 56(4) of the Housing Act 1980 (c. 51).

493 Expenditure on the construction of a building

(1) For the purposes of this Part, expenditure on the construction of a building does not include expenditure on the acquisition of land or rights in or over land.

(2) This Part has effect in relation to capital expenditure incurred by a person on repairs to a part of a building as if it were capital expenditure on the construction of that part of the building for the first time.

Chapter 2 The relevant interest

Introduction

494 Introduction

This Chapter identifies, in a case where a person has incurred expenditure on the construction of a building which is to be or include a qualifying dwelling-house--

(a) the relevant interest in the building, and

(b) the relevant interest in a dwelling-house comprised in the building.

The relevant interest in the building

495 General rule as to what is the relevant interest in the building

(1) The relevant interest in the building is the interest in the building to which the person who incurred the expenditure on the construction of the building was entitled when the expenditure was incurred.

(2) Subsection (1) is subject to the following provisions of this Chapter.

(3) If--

(a) the person who incurred the expenditure on the construction of the building was entitled to more than one interest in the building when the expenditure was incurred, and

(b) one of those interests was reversionary on all the others,

the reversionary interest is the relevant interest.

496 Interest acquired on completion of construction

For the purpose of determining the relevant interest, a person who--

(a) incurs expenditure on the construction of a building, and

(b) is entitled to an interest in the building on or as a result of the completion of the construction,

is treated as having had that interest when the expenditure was incurred.

497 Effect of creation of subordinate interest

An interest does not cease to be the relevant interest merely because of the creation of a lease or other interest to which that interest is subject.

498 Merger of leasehold interest

If the relevant interest is a leasehold interest which is extinguished on--

(a) being surrendered, or

(b) the person entitled to it acquiring the interest which is reversionary on it,

the interest into which the leasehold interest merges becomes the relevant interest when the leasehold interest is extinguished.

499 Provisions applying on termination of lease

(1) This section applies if the relevant interest in relation to expenditure on the construction of a building is a lease.

(2) If, with the consent of the lessor, the lessee of a building remains in possession after the termination of the lease without a new lease being granted to him, the lease is treated as continuing as long as the lessee remains in possession.

(3) If on the termination of the lease a new lease is granted to the lessee as a result of the exercise of an option available to him under the terms of the first lease, the second lease is treated as a continuation of the first.

(4) If on the termination of the lease the lessor pays a sum to the lessee in respect of a building comprised in the lease, the lease is treated as if it had come to an end by surrender in consideration of the payment.

(5) If on the termination of the lease--

(a) a new lease is granted to a different lessee, and

(b) in connection with the transaction that lessee makes a payment to the former lessee,

the two leases are treated as if they were the same lease which had been assigned by the former lessee to the new lessee in consideration of the payment.

The relevant interest in the dwelling-house

500 The relevant interest in the dwelling-house

The relevant interest in a dwelling-house comprised in a building is the relevant interest in the building, to the extent that it subsists in the dwelling-house.

Chapter 3 Qualifying expenditure

501 Capital expenditure on construction

If--

(a) capital expenditure has been incurred on the construction of a building which was to be or include a qualifying dwelling-house, 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.

502 Purchase of unused dwelling-house where developer not involved

(1) This section applies if--

(a) expenditure has been incurred on the construction of a building which was to be or include a qualifying dwelling-house,

(b) the relevant interest was sold before the first use of any dwelling-house comprised in the building,

(d) section 503 (purchase of dwelling-house 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 having been incurred when the capital sum became payable.

(4) If the relevant interest was sold more than once before the first use of any dwelling-house comprised in the building, subsection (2) has effect only in relation to the last of those sales.

503 Purchase of dwelling-house sold unused by developer

(1) This section applies if--

(a) expenditure has been incurred by a developer on the construction of a building which was to be or include a qualifying dwelling-house, and

(b) the relevant interest was sold by the developer in the course of the development trade before the first use of any dwelling-house comprised in the building.

(2) If--

(a) the sale of the relevant interest by the developer was the only sale of that interest before the first use of any dwelling-house comprised in the building, and

(b) a capital sum was 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 first use of any dwelling-house comprised in the building, and

(b) a capital sum was 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 treated as having been incurred when the capital sum referred to in subsection (2)(b) or (3)(b) became payable.

(5) For the purposes of this section--

(a) a developer is a person who carries on a trade which consists in whole or in part in the construction of buildings with a view to their sale, and

(b) an interest in a building is sold by the developer in the course of the development trade if the developer sells it in the course of the trade or (as the case may be) that part of the trade that consists in the construction of buildings with a view to their sale.

Chapter 4 Qualifying dwelling-houses

504 Requirements relating to the landlord

(1) A dwelling-house is a qualifying dwelling-house only if the landlord is--

(a) a company, and

(b) the person who--

(i) incurred the qualifying expenditure on the building in which the dwelling-house is comprised, or

(ii) is for the time being entitled to the relevant interest in the dwelling-house.

(2) The requirement that the landlord must be a company does not apply in relation to expenditure incurred--

(a) before 5th May 1983, or

(b) on or after that date pursuant to a contract entered into before that date,

unless a person other than a company became entitled to the relevant interest on or after that date.

505 Qualifying dwelling-houses: exclusions

(1) A dwelling-house is not a qualifying dwelling-house if any of the exclusions given below apply.

Exclusion 1

The landlord under the tenancy is--

(a) a housing association which is approved for the purposes of section 488 of ICTA, or

(b) a self-build society within the meaning of the Housing Associations Act 1985 (c. 69).

Exclusion 2

The landlord and the tenant are connected persons.

Exclusion 3

The tenant is a director of a company which is or is connected with the landlord.

Exclusion 4

The landlord is a close company and the tenant is, for the purposes of Part XI of ICTA--

(a) a participator in that company, or

(b) an associate of such a participator.

Exclusion 5

The tenancy is entered into as part of a mutual arrangement for avoidance.

(2) In exclusion 5, a "mutual arrangement for avoidance" means an arrangement--

(a) between the landlords (or owners) of different dwelling-houses, and

(b) under which one landlord takes a person as a tenant in circumstances in which, if that person was the tenant of a dwelling-house let by the other landlord, that dwelling-house would not be a qualifying dwelling-house because of exclusion 2, 3 or 4.

506 Dwelling-house ceasing to be qualifying dwelling-house

(1) If a dwelling-house ceases to be a qualifying dwelling-house otherwise than on a sale of the relevant interest in the dwelling-house, this Part has effect as if--

(a) the relevant interest in the dwelling-house had been sold at that time, and

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

(2) For the purposes of this Part--

(a) a dwelling-house is not to be regarded as ceasing altogether to be used merely because it falls temporarily out of use, and

(b) if, immediately before any period of temporary disuse, a dwelling-house is a qualifying dwelling-house, it is to be regarded as continuing to be a qualifying dwelling-house during the period of temporary disuse.

Chapter 5 Writing-down allowances

Entitlement to and calculation of writing-down allowances

507 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) that person is or has been an approved body,

(d) at the end of that chargeable period, the building is or includes a qualifying dwelling-house or two or more qualifying dwelling-houses.

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

508 Basic rule for calculating amount of allowance

(1) The basic rule is that the writing-down allowance for a chargeable period is 4% of the qualifying expenditure attributable to the dwelling-house or (as the case may be) each dwelling-house falling within section 507(1)(d).

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

(3) The basic rule does not apply if section 509 applies.

509 Calculation of allowance after sale of relevant interest

(1) This section applies if--

(a) the relevant interest in a qualifying dwelling-house is sold, and

(b) a balancing adjustment falls to be made under section 513 as a result of the sale.

(2) If this section applies, the writing-down allowance for any chargeable period ending after the sale is--

---

where--

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

(3) On any later such sale, the writing-down allowance is further adjusted in accordance with this section.

510 Allowance limited to residue of qualifying expenditure attributable to dwelling-house

(1) The amount of the writing-down allowance for a chargeable period in respect of a dwelling-house is limited to the residue of qualifying expenditure attributable to it.

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

Interpretation

511 Qualifying expenditure attributable to dwelling-house

(1) If the building concerned consists of a single qualifying dwelling-house, then, subject to the relevant limit, the whole of the qualifying expenditure is attributable to the dwelling-house.

(2) If the qualifying dwelling-house forms part of a building, the qualifying expenditure attributable to the dwelling-house is, subject to the relevant limit, the total of--

(a) the part of the qualifying expenditure properly attributable to that dwelling-house, and

(b) if there are common parts of the building, such part of the qualifying expenditure on those common parts--

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