Capital Allowances Act 2001 (c. 2)

(The document as of February, 2008)

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

(i) as it is just and reasonable to attribute to that dwelling-house, and

(ii) as does not exceed 10% of the part referred to in paragraph (a).

(3) In this section "the relevant limit" means--

(a) £60,000, if the dwelling-house is in Greater London, and

(b) £40,000, if the dwelling-house is elsewhere.

(4) In subsection (2) "common parts", in relation to a building, means common parts of the building which--

(a) are not intended to be in separate occupation (whether for domestic, commercial or other purposes), but

(b) are intended to be of benefit to some or all of the qualifying dwelling-houses included in the building.

(5) For the purposes of subsection (2), the qualifying expenditure on any common parts of a building is so much of the expenditure on the construction of the building as it is just and reasonable to attribute to those parts.

512 Residue of qualifying expenditure attributable to dwelling-house

(1) The residue of qualifying expenditure attributable to a dwelling-house is the qualifying expenditure attributable to that dwelling-house that has not yet been written off in accordance with Chapter 7.

(2) Subsection (1) is subject to section 528 (treatment of demolition costs).

Chapter 6 Balancing adjustments

General

513 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 in relation to a dwelling-house comprised in the building while it is a qualifying dwelling-house.

(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 dwelling-house immediately before the balancing event.

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

514 Balancing events

The following are balancing events in relation to a qualifying dwelling-house--

(a) the relevant interest in the dwelling-house is sold;

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

(d) the dwelling-house ceases altogether to be used (without being demolished or destroyed).

515 Proceeds from balancing events

(1) References in this Part to the proceeds from a balancing event 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 dwelling-house.

The net amount received for the remains of the dwelling-house, 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 dwelling-house ceases altogether to be used.

Any compensation of any description received in respect of the event, so far as it consists of capital sums.

(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.

Calculation of balancing adjustments

516 Dwelling-house a qualifying dwelling-house throughout

(1) This section provides for balancing adjustments in cases where the dwelling-house was a qualifying dwelling-house for the whole of the relevant period of ownership.

(2) A balancing allowance is made if--

(a) there are no proceeds from the balancing event, or

(b) the proceeds from the balancing event are less than the residue of qualifying expenditure attributable to the dwelling-house immediately before the event.

(3) The amount of the balancing allowance is the amount of--

(a) the residue (if there are no proceeds);

(b) the difference (if the proceeds are less than the residue).

(4) A balancing charge is made if the proceeds from the balancing event are more than the residue of qualifying expenditure attributable to the dwelling-house immediately before the event.

(5) The amount of the balancing charge is the amount of the difference.

517 Dwelling-house not a qualifying dwelling-house throughout

(1) This section provides for balancing adjustments where the building was not a qualifying dwelling-house for a part of the relevant period of ownership.

(2) A balancing allowance is made if--

(a) the proceeds from the balancing event are less than the starting expenditure attributable to the dwelling-house, and

(b) the total amount of the relevant allowances in respect of that expenditure is less than the adjusted net cost of the dwelling-house.

(3) The amount of the balancing allowance is the amount of the difference between the adjusted net cost of the dwelling-house and the total amount of the relevant allowances.

(4) A balancing charge is made if the proceeds from the balancing event are equal to or more than the starting expenditure attributable to the dwelling-house.

(5) The amount of the balancing charge is equal to the total amount of the relevant allowances.

(6) A balancing charge is also made if--

(a) the proceeds from the balancing event are less than the starting expenditure attributable to the dwelling-house, and

(b) the total amount of the relevant allowances in respect of that expenditure is more than the adjusted net cost in relation to the dwelling-house.

(7) The amount of the balancing charge is the amount of the difference between the total amount of those allowances and the adjusted net cost.

(8) "The relevant allowances" means--

(a) any initial allowance under paragraph 1 of Schedule 12 to FA 1982, and

(b) any writing-down allowance made for a chargeable period ending on or before the date of the balancing event in question.

518 Overall limit on balancing charge

(1) The amount of a balancing charge made on a person in respect of any qualifying expenditure attributable to a dwelling-house must not exceed the total amount of the relevant allowances made to that person.

(2) "The relevant allowances" has the meaning given by section 517(8).

519 Recovery of old initial allowances made on incorrect assumptions

(1) This section applies if--

(a) an initial allowance has been made under paragraph 1 of Schedule 12 to FA 1982 in respect of expenditure relating to a dwelling-house, and

(b) when the dwelling-house comes to be used, it is not a qualifying dwelling-house.

(2) All such assessments and adjustments of assessments are to be made as are necessary to secure that, despite the repeal of Schedule 12 to FA 1982, effect is given to the prohibition in paragraph 1(3) of that Schedule (on the making of initial allowances in respect of dwelling-houses which are not qualifying dwelling-houses).

Meaning of "the relevant period of ownership" etc.

520 The relevant period of ownership

The relevant period of ownership is the period beginning--

(a) with the day on which the dwelling-house was first used for any purpose, or

(b) if the relevant interest in the dwelling-house has been sold after that day, with the day following that on which the sale (or the last such sale) occurred,

and ending with the day on which the balancing event occurs.

521 Starting expenditure

(1) This section gives the starting expenditure attributable to a dwelling-house for the purposes of section 517.

(2) If the person to or on whom the balancing allowance or balancing charge falls to be made is the person who incurred the qualifying expenditure attributable to the dwelling-house, that expenditure is the starting expenditure.

(3) Otherwise, the starting expenditure is the residue of qualifying expenditure attributable to the dwelling-house at the beginning of the relevant period of ownership.

(4) If section 528 (treatment of demolition costs) applies, the starting expenditure is increased by an amount equal to the net cost of the demolition.

522 Adjusted net cost

The amount of the adjusted net cost in relation to a dwelling-house is--

---

where--

S is the starting expenditure attributable to the dwelling-house,
P is the amount of any proceeds from the balancing event,
I is the number of days in the relevant period of ownership on which the dwelling-house was a qualifying dwelling-house, and
R is the number of days in the whole of the relevant period of ownership.

Chapter 7 Writing off qualifying expenditure attributable to dwelling-house

523 Introduction

For the purposes of this Part qualifying expenditure attributable to a dwelling-house is written off to the extent and at the times specified in this Chapter.

524 Writing off initial allowances

If an initial allowance was made under paragraph 1 of Schedule 12 to FA 1982 in respect of a qualifying dwelling-house, the amount of the allowance is written off at the time of the first use of the dwelling-house.

525 Writing off writing-down allowances

(1) If a writing-down allowance is made in respect of qualifying expenditure attributable to a dwelling-house, the amount of the allowance is written off at the end of the chargeable period for which the allowance is made.

(2) If a balancing event occurs at the end of a chargeable period, the amount written off under subsection (1) is to be taken into account in calculating the residue of qualifying expenditure immediately before the event to determine what balancing adjustment (if any) is to be made.

526 Writing off expenditure for periods when building not used as qualifying dwelling-house

(1) This section applies if for any period or periods between--

(a) the time when the whole or a part of the building was first used for any purpose, and

(b) the time when the residue of qualifying expenditure attributable to a dwelling-house falls to be ascertained,

the building or part has not been a qualifying dwelling-house.

(2) An amount equal to the notional writing-down allowances for the period or periods is written off at the time when the residue falls to be ascertained.

(3) The notional writing-down allowances are the allowances that would have been made for the period or periods in question (if the building or part had remained a qualifying dwelling-house), at such rate or rates as would have been appropriate, having regard to any relevant sale.

(4) In subsection (3) "relevant sale" means a sale of the relevant interest as a result of which a balancing adjustment falls to be made under section 513.

527 Writing off or increase of expenditure where balancing adjustment made

(1) This section applies if the relevant interest in the dwelling-house is sold.

(2) If a balancing allowance is made, the amount by which the residue of qualifying expenditure attributable to the dwelling-house before the balancing event exceeds the net proceeds from the event is written off at the time of the event.

(3) If a balancing charge is made, the amount of the residue of qualifying expenditure attributable to the dwelling-house is increased at the time of the balancing event by the amount of the charge.

(4) But if the balancing charge is made under section 517(6) (difference between relevant allowances and adjusted net cost), the residue of qualifying expenditure attributable to the dwelling-house immediately after the balancing event is limited to the net proceeds from the event.

528 Treatment of demolition costs

(1) This section applies if--

(a) a dwelling-house is demolished, and

(b) the person to or on whom any balancing allowance or balancing charge is or might be made is the person incurring the cost of the demolition.

(2) The net cost of the demolition is added to the residue of qualifying expenditure attributable to the qualifying dwelling-house immediately before the demolition.

(3) "The net cost of the demolition" means the amount, if any, by which the cost of the demolition exceeds any money received for the remains of the property.

(4) If this section applies, the net cost of the demolition is not treated for the purposes of this Part as expenditure on any other property replacing the property demolished.

Chapter 8 Supplementary provisions

529 Giving effect to allowances and charges

(1) If a person who is entitled or liable to an allowance or charge for a chargeable period was carrying on a Schedule A business at any time in that period, the allowance or charge is to be given effect in calculating the profits of that business, by treating--

(a) the allowance as an expense of that business, and

(b) the charge as a receipt of that business.

(2) If a person who is entitled or liable to an allowance or charge for a chargeable period was not carrying on a Schedule A business at any time in that period, the allowance or charge is to be given effect by treating him as if he had been carrying on such a business in that period and as if--

(a) the allowance were an expense of that business, and

(b) the charge were a receipt of that business.

530 Apportionment of sums partly referable to non-qualifying assets

(1) If the sum paid for the sale of the relevant interest in a building is attributable--

(a) partly to assets representing expenditure for which an allowance can be made under this Part, and

(b) partly to assets representing other expenditure,

only so much of the sum paid as on a just and reasonable apportionment is attributable to the assets referred to in paragraph (a) is to be taken into account for the purposes of this Part.

(2) Subsection (1) applies to other proceeds from a balancing event in respect of a building as it applies to a sum given for the sale of the relevant interest in the building.

(3) Subsection (1) does not affect any other provision of this Part requiring an apportionment of the proceeds of a balancing event.

531 Meaning of "dwelling-house", "lease" etc.

(1) In this Part "dwelling-house" has the same meaning as in the Rent Act 1977 (c. 42).

(2) In this Part "lease" includes--

(a) an agreement for a lease if the term to be covered by the lease has begun, and

(b) any tenancy,

but does not include a mortgage (and "lessee", "lessor" and "leasehold interest" are to be read accordingly).

(3) In the application of this Part to Scotland--

(a) "leasehold interest" means the interest of a tenant in property subject to a lease, and

(b) any reference to an interest which is reversionary on a leasehold interest or on a lease is to be read as a reference to the interest of the landlord in the property subject to the leasehold interest or lease.

Part 11 Contributions

Chapter 1 Exclusion of expenditure met by contributions

Rules excluding contributions

532 The general rule excluding contributions

(1) For the purposes of this Act, the general rule is that a person ("R") is to be regarded as not having incurred expenditure to the extent that it has been, or is to be, met (directly or indirectly) by--

(a) a public body, or

(b) a person other than R.

(2) In this Chapter "public body" means the Crown or any government or public or local authority (whether in the United Kingdom or elsewhere).

(3) The general rule does not apply for the purposes of Part 9 (dredging allowances).

(4) The general rule is subject to the exceptions in sections 534 to 536.

533 Exclusion of contributions to dredging

(1) For the purposes of Part 9, a person ("D") who has incurred expenditure is to be regarded as not having incurred it for the purposes of a trade carried on or to be carried on by D to the extent that it has been, or is to be, met (directly or indirectly) by--

(a) a public body, or

(b) capital sums contributed by another person for purposes other than those of D's trade.

(2) Subsection (1) is not subject to the exceptions in sections 534 to 536.

Exceptions to the general rule excluding contributions

534 Northern Ireland regional development grants

(1) A person is to be regarded as having incurred expenditure (despite section 532(1)) to the extent that it is met (directly or indirectly) by a grant--

(a) made under Northern Ireland legislation, and

(b) declared by the Treasury by order to correspond to a grant under Part II of the Industrial Development Act 1982 (c. 52).

(2) Subject to subsection (3), the grant is to be treated as not falling within subsection (1) if, by virtue of paragraph 8 of Schedule 3 to OTA 1975, expenditure which has been or is to be met by the grant is not to be regarded for any of the purposes of Part I of OTA 1975 as having been incurred by any person.

(3) If only a proportion of the expenditure which has been or is to be met by the grant is expenditure which, if it were not so met, would be allowable under section 3 or 4 of OTA 1975, only a corresponding proportion of the grant is to be treated as not falling within subsection (1).

535 Insurance or compensation money

A person is to be regarded as having incurred expenditure (despite section 532(1)) to the extent that it is met (directly or indirectly) by--

(a) insurance money, or

(b) other compensation money,

payable in respect of an asset which has been destroyed, demolished or put out of use.

536 Contributions not made by public bodies and not eligible for tax relief

(1) A person ("R") is to be regarded as having incurred expenditure (despite section 532(1)) to the extent that the requirements in subsections (2) and (3) are satisfied in relation to the expenditure.

(2) The first requirement is that the person meeting R's expenditure ("C") is not a public body.

(3) The second requirement is that--

(a) no allowance can be made under Chapter 2 in respect of C's expenditure, and

(b) the expenditure is not allowed to be deducted in calculating the profits of a trade or relevant activity carried on by C.

(4) When determining for the purposes of subsection (3)(a) whether an allowance can be made under Chapter 2, assume that C is within the charge to tax.

(5) In subsection (3)(b) "relevant activity" means--

(a) for the purposes of Part 2--

(i) an ordinary Schedule A business;

(ii) a furnished holiday lettings business;

(iii) an overseas property business;

(iv) a profession or vocation;

(v) any concern listed in section 55(2) of ICTA (mines, transport undertakings etc.);

(vi) the management of an investment company;

(b) for other purposes, a profession or vocation.

Chapter 2 Contribution allowances

Contribution allowances under Parts 2 to 5

537 Conditions for contribution allowances under Parts 2 to 5

(1) This section gives general conditions for making contribution allowances under Parts 2 to 5.

(2) The general conditions are that--

(a) a person ("C") has contributed a capital sum to expenditure on the provision of an asset,

(b) the expenditure would (ignoring section 532(1))--

(i) have been regarded as wholly incurred by another person ("R"), and

(ii) if R is not a public body, have entitled R to allowances under Part 2, 3, 4 or 5 or to allocate the expenditure to a pool under Part 2, and

(3) In this section "public body" means the Crown or any public or local authority in the United Kingdom.

(4) In this Chapter "relevant activity" has the meaning given by section 536(5).

538 Plant and machinery

(1) This section is about contribution allowances under Part 2 and applies if--

(a) the general conditions for contribution allowances are met, and

(b) C's contribution is made for the purposes of a trade or relevant activity carried on, or to be carried on, by C.

(2) C is to be treated for the purposes of allowances under Part 2 as if--

(a) the contribution were expenditure incurred by C on the provision, for the purposes of C's trade or relevant activity, of the asset provided by means of C's contribution,

(b) C owned the asset as a result of incurring that expenditure at any time when R owns it or is treated under Part 2 as owning it, and

(3) Expenditure treated as incurred under subsection (2)(a), if allocated to any pool, must be allocated to a single asset pool.

(4) Subsections (5) and (6) apply for the purposes of contribution allowances under Part 2 if the whole or a part of the trade or relevant activity for the purposes of which C's contribution was made is transferred.

(5) If the whole of the trade or relevant activity is transferred, writing-down allowances for chargeable periods ending after the date of the transfer are to be made to the transferee instead of to the transferor.

(6) If a part of the trade or relevant activity is transferred, writing-down allowances for chargeable periods ending after the date of the transfer are to be made to the transferee instead of to the transferor to the extent that they are properly referable to the part transferred.

539 Industrial buildings

(1) This section is about contribution allowances under Part 3 and applies if--

(a) the general conditions for contribution allowances are met, and

(b) C's contribution is made for the purposes of a trade or relevant activity carried on, or to be carried on--

(i) by C, or

(ii) by a tenant of land in which C has an interest.

(2) C is to be treated for the purposes of allowances under Part 3 as if--

(a) the contribution were expenditure incurred by C on the provision, for the purposes of the trade or relevant activity, of an asset similar to that provided by means of C's contribution, and

(b) the asset were at all material times in use for the purposes of the trade or relevant activity.

(3) Subsection (4) applies if--

(a) C's contribution was made for the purposes of a trade or relevant activity carried on, or to be carried on, by a tenant of land in which C had an interest, and

(b) C was entitled to allowances as a result of subsection (2).

(4) A person is entitled to a writing-down allowance for a chargeable period if at the end of the period the person is entitled to the interest held by C when the contribution was made.

(5) For the purposes of subsection (4), the provisions of Part 3 relating to the relevant interest apply (with any necessary modifications) in relation to the contribution made for the purposes of the trade or relevant activity carried on, or to be carried on, by the tenant as they apply in relation to expenditure incurred on the construction of an industrial building.

(6) Section 311 (calculation of writing-down allowance after sale of relevant interest) does not apply in relation to writing-down allowances to be made in respect of contributions.

540 Agricultural buildings

(1) This section is about contribution allowances under Part 4 and applies if--

(a) the general conditions for contribution allowances are met, and

(b) C's contribution is made for the purposes of a trade or relevant activity carried on, or to be carried on--

(i) by C, or

(ii) by a tenant of land in which C has a interest.

(2) C is to be treated for the purposes of allowances under Part 4 as if--

(a) the contribution were expenditure incurred by C on the provision, for the purposes of the trade or relevant activity, of an asset similar to that provided by means of C's contribution, and

(b) the asset were at all material times in use for the purposes of the trade or relevant activity.

(3) Subsection (4) applies if--

(a) C's contribution was made for the purposes of a trade or relevant activity carried on, or to be carried on, by a tenant of land in which C had an interest, and

(b) C was entitled to allowances as a result of subsection (2).

(4) A person is entitled to a writing-down allowance for a chargeable period if at the end of the period the person is entitled to the interest held by C when the contribution was made.

(5) For the purposes of subsection (4), the provisions of Part 4 relating to the relevant interest apply (with any necessary modifications) in relation to the contribution made for the purposes of the trade or relevant activity carried on, or to be carried on, by the tenant as they apply in relation to expenditure incurred on the construction of an agricultural building.

541 Mineral extraction

(1) This section is about contribution allowances under Part 5 and applies if--

(a) the general conditions for contribution allowances are met, and

(b) C's contribution is made for the purposes of a trade carried on, or to be carried on, by C.

(2) C is to be treated for the purposes of allowances under Part 5 as if--

(a) the contribution were expenditure incurred by C on the provision, for the purposes of C's trade, of an asset similar to that provided by means of C's contribution, and

(b) the asset were at all material times in use for the purposes of C's trade.

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