Legalize / United Kingdom / Public General Act

Capital Allowances Act 2001

Type Public General Act

Publication 2001-03-22

Last updated 2026-03-18

State In force

Department Statute Law Database

Source legislation.gov.uk

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Meaning of connected person

232

(1) For the purposes of this Chapter one person is to be treated as connected with another if—

(a) they would be treated as connected under section 575, or

(b) they are to be treated as connected under subsection (2).

(2) If—

(a) a public authority has at any time acquired plant or machinery from another public authority otherwise than by purchase, and

(b) it is directly or indirectly as a consequence of having been leased under a finance lease that the plant or machinery is available for any use to which it is put,

the authority from whom the plant or machinery was acquired is to be treated, in relation to that plant or machinery, as connected with the acquiring authority and with every person connected with the acquiring authority.

(3) In subsection (2), “public authority” includes the Crown or any government or local authority.

(4) Subsection (2) does not apply in relation to section 219 (meaning of “finance lease”).

Additional VAT liabilities and rebates

233

This Chapter needs to be read with sections 241 to 245 (provision for cases where a person involved in a relevant transaction or a sale and finance leaseback incurs an additional VAT liability or receives an additional VAT rebate).

Chapter 18 — Additional VAT liabilities and rebates

Introduction

234

For the purposes of this Chapter—

(a) “additional VAT liability” and “additional VAT rebate” have the meaning given by section 547,

(b) the time when—

(i) a person incurs an additional VAT liability, or

(ii) an additional VAT rebate is made to a person,

is given by section 548, and

(c) the chargeable period in which an additional VAT liability or an additional VAT rebate accrues is given by section 549.

Additional VAT liability

Additional VAT liability treated as qualifying expenditure

235

(1) This section applies if a person—

(a) has incurred qualifying expenditure (“the original expenditure”), and

(b) incurs an additional VAT liability in respect of the original expenditure at a time when the plant or machinery is provided for the purposes of the qualifying activity.

(2) The additional VAT liability is to be treated as qualifying expenditure—

(a) which is incurred on the same plant or machinery as the original expenditure, and

(b) which may be taken into account in determining the person’s available qualifying expenditure for the chargeable period in which the additional VAT liability accrues.

Additional VAT liability generates first-year allowance

236

(1) Subsection (2) applies if—

(a) the original expenditure was first-year qualifying expenditure, and

(b) the additional VAT liability is incurred at a time when the plant or machinery is provided for the purposes of the qualifying activity.

(2) The additional VAT liability is to be regarded for the purposes of this Part as first-year qualifying expenditure which—

(a) is incurred on the same plant or machinery and is the same type of first-year qualifying expenditure as the original expenditure, and

(b) entitles the person incurring the liability to a first-year allowance for the chargeable period in which the liability accrues.

(3) Subsections (3) and (4) of section 52 apply to first-year qualifying expenditure constituted by the additional VAT liability as they apply to other first-year qualifying expenditure.

(3A) Subsection (3B) applies if—

(a) the original expenditure was AIA qualifying expenditure, and

(b) the additional VAT liability is incurred at a time when the plant or machinery is provided for the purposes of the qualifying activity.

(3B) The additional VAT liability is to be regarded for the purposes of this Part as AIA qualifying expenditure incurred on the same plant or machinery as the original expenditure in the chargeable period in which the liability accrues.

(3C) Section 51A(7) applies to AIA qualifying expenditure constituted by the additional VAT liability as it applies to other AIA qualifying expenditure.

(4) This section is subject to sections 237 and 241.

Exceptions to section 236

237

(1) An additional VAT liability is not AIA qualifying expenditure or first-year qualifying expenditure if at the time when the liability is incurred the plant or machinery is used for overseas leasing which is not protected leasing.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional VAT rebate

Additional VAT rebate generates disposal value

238

(1) This section applies if—

(a) a person has incurred qualifying expenditure (“the original expenditure”),

(b) an additional VAT rebate is made to the person in respect of the original expenditure, and

(c) the person owns the plant or machinery on which the original expenditure was incurred at any time in the chargeable period in which the rebate is made.

(2) If (apart from this section) there would not be a disposal value to be brought into account in respect of the plant or machinery for the chargeable period in which the rebate accrues, the amount of the rebate must be brought into account as a disposal value for that chargeable period.

(3) If (apart from this section) there would be a disposal value to be brought into account in respect of the plant or machinery for the chargeable period in which the rebate accrues, the amount of the rebate must be brought into account as an addition to that disposal value.

Limit on disposal value where additional VAT rebate

239

(1) Subsection (2) applies if—

(a) a person is required to bring a disposal value into account in respect of any plant or machinery, and

(b) any additional VAT rebate or rebates has or have been made to him in respect of the original expenditure.

(2) The amount of the disposal value is limited to the amount of the original expenditure reduced by the total of any additional VAT rebates accruing in previous chargeable periods in respect of that expenditure.

But this is subject to subsections (3) to (6).

(3) Subsection (4) applies if the disposal value is required to be brought into account by section 238(2) (disposal value for additional VAT rebate on its own).

(4) The amount of the disposal value to be brought into account is limited to the amount of the original expenditure reduced by the amount of any disposal values brought into account in respect of the plant or machinery as a result of any earlier event.

(5) If—

(a) the person required to bring the disposal value into account has acquired the plant or machinery as a result of a transaction which was, or a series of transactions each of which was, between connected persons, and

(b) an additional VAT rebate has been made to any party to the transaction, or to any of the transactions,

the amount of the disposal value is limited to the greatest relevant expenditure of any of the parties.

(6) The relevant expenditure of a party is that party’s qualifying expenditure on the provision of the plant or machinery, less any additional VAT rebate made to that party.

Short-life assets: balancing allowance

Additional VAT liability

240

(1) This section applies if a person—

(a) was entitled to a balancing allowance for the final chargeable period for a short-life asset pool for a qualifying activity,

(b) has incurred, after the end of that period, an additional VAT liability in respect of the original expenditure on the provision of the short-life asset, and

(2) The person is entitled to a further balancing allowance, of an amount equal to the additional VAT liability, for the chargeable period of the qualifying activity in which the additional VAT liability accrues.

Anti-avoidance

No first-year allowance in respect of additional VAT liability

241

(1) This section applies if—

(a) one person (“B”) enters into a transaction with another person (“S”) which is a relevant transaction for the purposes of Chapter 17 (anti-avoidance), and

(b) an annual investment allowance or a first-year allowance in respect of B’s expenditure under the relevant transaction is prohibited by section 217(1)....

(2) No annual investment allowance or first-year allowance is to be made in respect of any additional VAT liability incurred by B in respect of his expenditure under the relevant transaction.

(3) Any annual investment allowance or first-year allowance which is prohibited by subsection (2), but which has already been made, is to be withdrawn.

Restriction on B’s qualifying expenditure: general

242

(1) This section applies instead of section 218 (restriction on B’s qualifying expenditure in case other than sale and finance leaseback) if—

(a) apart from this subsection, section 218 would apply, and

(b) an additional VAT liability has been incurred by, or an additional rebate has been made to, any of the persons mentioned in that section.

(2) The amount, if any, by which E exceeds D is to be left out of account in determining B’s available qualifying expenditure.

E and D are defined in subsections (3) to (6).

(3) Except where subsection (6) applies, E is the sum of—

(a) B’s expenditure under the relevant transaction, and

(b) any additional VAT liability incurred by B in respect of that expenditure.

(4) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value.

(4A) D is nil if—

(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction, and

(b) at any time before that transaction S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.

(5) Otherwise, D is whichever of the following is the smallest—

(a) the market value of the plant or machinery;

(b) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure—

(i) increased by the amount of any additional VAT liability incurred by S in respect of that expenditure, and

(ii) reduced by the amount of any additional VAT rebate made to S in respect of that expenditure;

(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure—

(i) increased by the amount of any additional VAT liability incurred by that person in respect of that expenditure, and

(ii) reduced by the amount of any additional VAT rebate made to that person in respect of that expenditure.

(6) If—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) subsection (5) applies and the smallest amount under that subsection is the market value of the plant or machinery, and

E is the amount of B’s expenditure under the relevant transaction.

(7) Linked person”, in relation to plant or machinery, means a person—

(a) who owned the plant or machinery at any time before the relevant transaction, and

(b) who was connected with S at any time between—

(i) the time when the person became owner of the plant or machinery, and

(ii) the time of the relevant transaction.

(8) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.

Restriction on B’s qualifying expenditure: sale and finance leaseback

243

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B’s qualifying expenditure if lessor not bearing non-compliance risk

244

An additional VAT liability is not qualifying expenditure for the purposes of this Part if—

(a) section 225 (restriction on B’s qualifying expenditure if lessor not bearing compliance risk) applies, and

(b) the additional VAT liability is incurred—

(i) by B, in respect of the expenditure referred to in section 225(2)(a), or

(ii) by the lessor, in respect of the expenditure referred to in section 225(2)(b).

Effect of election under section 227 on additional VAT liability

245

(1) This section applies if—

(a) an election is made under section 227 (sale and leaseback or sale and finance leaseback: election for special treatment), and

(b) an additional VAT liability is incurred by S in respect of the capital expenditure incurred on the provision of the plant or machinery to which the election relates.

(2) The effect of the election is—

(a) that no allowance is to be made to S under this Act in respect of the additional VAT liability, and

(b) that the additional VAT liability must be left out of account in determining Ss’ available qualifying expenditure for any period.

Miscellaneous

246

(1) All such assessments and adjustments of assessments are to be made as are necessary to give effect to sections 241 to 245.

(2) Section 232 (meaning of connected person) applies for the purposes of sections 242 and 243.

Chapter 19 — Giving effect to allowances and charges

Trades

247

(1) If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a trade, the allowance or charge is to be given effect in calculating the profits of that person’s trade, by treating—

(a) the allowance as an expense of the trade, and

(b) the charge as a receipt of the trade.

(1A) Subsection (1) is subject to section 6E (giving effect to allowances and charges: NI rate activity cases).

(2) See Chapter 16A for provision restricting in certain circumstances the ways in which effect may be given to an allowance by virtue of subsection (1)(a).

Property businesses

Ordinary Schedule A businesses

248

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a UK property business, 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.

Furnished holiday lettings businesses

249

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Overseas property businesses

250

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an ... overseas property business, 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.

Activities analogous to trades

Professions and vocations

251

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is carrying on a profession or vocation, the allowance or charge is to be given effect in calculating the profits or gains of that person’s profession or vocation, by treating—

(a) the allowance as an expense of the profession or vocation, and

(b) the charge as a receipt of the profession or vocation.

Mines, transport undertakings etc.

252

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is a concern listed in section 12(4) of ITTOIA 2005 or section 39(4) of CTA 2009 (mines, transport undertakings etc.) the allowance or charge is to be given effect in calculating the profits of the concern under Chapter 2 of Part 2 of ITTOIA 2005 or, as the case may be, under Case I of Schedule D, by treating—

(a) the allowance as an expense of the concern, and

(b) the charge as a receipt of the concern.

Companies with investment business

Investment companies

253

(1) This section applies if the qualifying activity of a person entitled to an allowance or liable to a charge for a chargeable period is managing the investment business.

(2) The allowance is, as far as possible, to be given effect by deducting the amount of the allowance from any income for the period of the business; and section 1233 of CTA 2009 (addition of allowances to company’s expenses of management) applies only in so far as it cannot be given effect in this way.

(3) The charge is to be given effect by treating the amount of the charge as income of the business.

(4) Except as provided by subsections (2) and (3), the Corporation Tax Acts apply in relation to the allowance or charge as if they were required to be given effect in calculating the profits of that person’s trade for the purposes of Part 3 of CTA 2009.

(5) Corresponding allowances or charges in the case of the same plant or machinery are not to be made under this Part both under this section and in another way.

(6) Expenditure to which this section applies is not to be taken into account otherwise than under this Part or as provided by section 1233 or 1244A of CTA 2009.

(7) This section is subject to sections 682(3) and 699(3) of CTA 2010.

Long-term business

Introductory

254

(1) Sections 255 and 256 apply if a company which is carrying on any long-term business is entitled or liable to any allowances or charges for a chargeable period in respect of plant or machinery consisting of a management asset.

(2) In this Chapter “management asset” has the same meaning as in Chapter 1 of Part 12 (life assurance business).

Apportionment of allowances and charges

255

(1) This section applies if the long-term business of the company consists of—

(a) basic life assurance and general annuity business, and

(b) non-BLAGAB long-term business.

(2) In that case—

(a) any allowance to which the company is entitled for a chargeable period in respect of a management asset, and

(b) any charge to which it is liable for a chargeable period in respect of a management asset,

must be apportioned between the businesses in accordance with Chapter 7 of Part 2 of FA 2012.

Different giving effect rules for different categories of business

256

(1) Subsection (2) applies if a company—

(a) carries on basic life assurance and general annuity business, and

(b) is charged to tax in accordance with the I - E rules in respect of that business.

(2) If this subsection applies—

(a) any allowances (or parts of allowances) to which the company is entitled in respect of the basic life assurance and general annuity business are to be given effect by treating them for the purposes of section 76 of FA 2012 as deemed BLAGAB management expenses for the chargeable period in question, and

(b) any charges (or parts of charges) to which the company is liable in respect of that business are to be given effect by treating the company as receiving for the chargeable period in question an amount which is equal to the amount of the charges (or parts of charges) and to which the charge to corporation tax on income applies.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary

257

(1) Allowances and charges to which sections 255 and 256 apply are not to be given effect otherwise than in accordance with those sections.

(2) Subsection (1) does not prevent any allowance which is to be given effect under those sections from being taken into account in any calculation for the purposes of—

(a) section 93(5) of FA 2012 (minimum profits test), or

(b) section 103 of FA 2012 (rules for determining policyholders' share of I - E profit).

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Special leasing of plant or machinery

Special leasing: income tax

258

(1) This section applies for income tax purposes if the qualifying activity of a person entitled or liable to an allowance or charge for a chargeable period (“the current tax year”) is special leasing of plant or machinery.

(2) Subject to subsection (3), the allowance is to be given effect by deducting it from the person’s income for the current tax year from any qualifying activity the person has of special leasing of plant or machinery.

(3) If the plant or machinery leased under the special leasing was not used for the whole or any part of the current tax year for the purposes of a qualifying activity carried on by the lessee—

(a) the allowance, or

(b) a proportionate part of it,

is to be given effect by deducting the allowance, or the part of the allowance, from the person’s income for the current tax year from that special leasing only.

(3A) The allowance or (as the case may be) the proportionate part of the allowance is given effect at Step 2 of the calculation in section 23 of ITA 2007.

(4) Any charge is to be given effect by treating the charge as income to be assessed to income tax.

(5) If the amount to be deducted from a description of income specified in subsection (2) or (3) exceeds the person’s income of that description for the current tax year, the excess must be deducted from the person’s income of the same description for the next tax year, and so on for subsequent tax years.

(6) For the purposes of this section, income from special leasing of plant or machinery includes any charge treated as income under subsection (4).

(7) In this section, references to deducting an allowance (or a part of an allowance) from income include setting it off against income.

Special leasing: corporation tax (general)

259

(1) This section applies for corporation tax purposes if the qualifying activity of a company entitled or liable to an allowance or charge for a chargeable period (“the current accounting period”) is special leasing of plant or machinery.

(2) Subject to subsection (3), the allowance is to be given effect by deducting it from the company’s income for the current accounting period from any qualifying activity it has of special leasing of plant or machinery.

(3) If the plant or machinery leased under the special leasing was not used for the whole or any part of the current accounting period for the purposes of a qualifying activity carried on by the lessee—

(a) the allowance, or

(b) a proportionate part of it,

is to be given effect by deducting the allowance, or the part of the allowance, from the company’s income for the current accounting period from that special leasing only.

(4) Any charge is to be given effect by treating the charge as income from special leasing of plant or machinery.

Special leasing: corporation tax (excess allowance)

260

(1) This section applies if the amount to be deducted from a description of income specified in section 259(2) or (3) exceeds the company’s income of that description for the current accounting period.

(2) Subject to subsections (3) to (6), the excess must (if the company remains within the charge to tax) be deducted from the company’s income of the same description for the next accounting period (and so on for subsequent accounting periods).

(3) The company may, on making a claim, require the excess to be deducted from any profits—

(a) of the current accounting period, and

(b) if the company was then within the charge to tax, of any previous accounting period ending within the carry-back period.

(4) The carry-back period is a period which—

(a) is of the same length as the current accounting period, and

(b) ends at the start of the current accounting period.

(5) If the preceding accounting period began before the start of the carry-back period, the total amount of deductions that may be made from the profits of the preceding accounting period under—

(a) subsection (3), and

(b) any corresponding provision of the Corporation Tax Acts relating to losses,

must not exceed a part of those profits proportionate to the part of the period falling within the carry-back period.

(6) A claim under subsection (3) must be made no later than 2 years after the end of the current accounting period.

(7) If the deduction of the allowance (or of part of it) was subject to the restriction in section 259(3)—

(a) subsections (3) to (6), and

(b) sections 99 and 113 of CTA 2010 (group relief),

do not apply in relation to the allowance (or part of it).

(8) In this section “profits” has the same meaning as in Part 2 of CTA 2009 (see section 2(2) of that Act).

Special leasing: life assurance business

261

In the case of a company which is carrying on any long-term business—

(a) subsections (3) to (6) of section 260, and

(b) sections 99 and 113 of CTA 2010 (group relief),

do not apply in relation to an allowance to which the company is entitled under section 19 (special leasing of plant or machinery).

Employments and offices

262

If the qualifying activity of a person who is entitled or liable to an allowance or charge for a chargeable period is an employment or office, the allowance or charge is to be given effect, by treating—

(a) the allowance as a deduction from the taxable earnings from the employment or office, and

(b) the charge as earnings of the employment or office.

Chapter 20 — Supplementary provisions

Partnerships and successions

Qualifying activities carried on in partnership

263

(1) This section applies if—

(a) a qualifying activity has been set up and is at any time carried on in partnership,

(b) there has been a change in the persons engaged in carrying on the qualifying activity, and

(c) if the qualifying activity is a trade or property business, the condition in subsection (1A) or (1B) (whichever is appropriate) is met.

(1A) For income tax purposes, the condition is that a person carrying on the trade or property business immediately before the change continues to carry it on after the change.

(1B) For corporation tax purposes, the condition is that a company carrying on the trade or property business in partnership immediately before the change continues to carry it on in partnership after the change.

(2) In this section—

“the present partners” means the person or persons for the time being carrying on the qualifying activity,

“the partners at the time of the event” means the person or persons carrying on the qualifying activity at the time of the event in question,

“predecessors”—in relation to the present partners, means their predecessors in carrying on the qualifying activity, andin relation to the partners at the time of the event, means their predecessors in carrying on the qualifying activity, and

“qualifying activity”—does not include an employment or office, butincludes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

(3) Any annual investment allowance, first-year allowance or writing-down allowance under this Part is to be made to the present partners.

(4) The amount of any allowance arising under subsection (3) is to be calculated as if—

(a) the present partners had at all times been carrying on the qualifying activity, and

(b) everything done to or by their predecessors in carrying on the qualifying activity had been done to or by the present partners.

(5) If any event occurs which gives rise or may give rise to a balancing allowance or a balancing charge under this Part, the allowance or charge is to be made to or on the partners at the time of the event.

(6) The amount of any allowance or charge arising under subsection (5) is to be calculated as if—

(a) the partners at the time of the event had at all times been carrying on the qualifying activity, and

(b) everything done to or by their predecessors in carrying on the qualifying activity had been done to or by the partners at the time of the event.

Partnership using property of a partner

264

(1) Subsection (2) applies if—

(a) a qualifying activity is carried on in partnership,

(b) plant or machinery is used for the purposes of the qualifying activity, and

(2) The same allowances, deductions and charges are to be made under this Part in respect of the plant or machinery as would fall to be made if—

(a) the plant or machinery had at all material times been owned by all the partners and been partnership property, and

(b) everything done by or to any of the partners in relation to that plant or machinery had been done by or to all the partners.

(3) The disposal value of plant or machinery is not required to be brought into account if—

(a) the plant or machinery is used for the purposes of a qualifying activity carried on in partnership,

(b) a sale or gift of the plant or machinery is made by one or more of the partners to one or more of the partners, and

(4) The references in this section to use for the purposes of a qualifying activity do not include use—

(a) as a result of a letting by the partner or partners in question to the partnership, or

(b) in consideration of the making to the partner or partners in question of any payment which may be deducted in calculating the profits of the qualifying activity.

Successions: general

265

(1) This section applies if—

(a) a person (“the successor”) succeeds to a qualifying activity which until that time was carried on by another person (“the predecessor”), and

(b) if the qualifying activity is a trade or property business, the condition in subsection (1A) or (1B) (whichever is appropriate) is met.

(1A) For income tax purposes, the condition is that no person carrying on the trade or property business immediately before the succession continues to carry it on after the succession.

(1B) For corporation tax purposes, the condition is that no company carrying on the trade or property business in partnership immediately before the succession continues to carry it on in partnership after the succession.

(2) Relevant property is to be treated for the purposes of this Part as if—

(a) it had been sold to the successor when the succession takes place, and

(b) the net proceeds of the sale were the market value of the property.

(3) “Relevant property” means any property which—

(a) immediately before the succession, was owned by the predecessor and was either in use or provided and available for use for the purposes of the discontinued qualifying activity, and

(b) immediately after the succession, and without being sold, is either in use or provided and available for use for the purposes of the new qualifying activity.

(4) No entitlement to an annual investment allowance or a first-year allowance arises under this section.

(5) In this section “qualifying activity”—

(a) does not include an employment or office, but

(b) includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Election where predecessor and successor are connected persons

266

(1) This section applies if a person (“the successor”) succeeds to a qualifying activity which was until that time carried on by another person (“the predecessor”) and—

(a) the two persons are connected with each other,

(b) each of them is within the charge to tax on the profits of the qualifying activity, and

(2) If this section applies, the predecessor and the successor may jointly elect for the provisions of section 267 to have effect.

(3) The election may be made whether or not any plant or machinery has actually been sold or transferred.

(4) The election must be made by notice to the an officer of Revenue and Customs within 2 years after the date on which the succession takes effect.

(5) For the purposes of this section, the predecessor and the successor are connected with each other if any of the following conditions is met—

(a) they would be treated as connected persons under section 575;

(b) one of them is a partnership and the other has the right to a share in that partnership;

(d) both of them are partnerships and another person has the right to a share in both of them;

(e) both of them are bodies corporate, or one of them is a partnership and the other is a body corporate, and (in either case) another person has control over both of them.

(6) In subsection (5) any reference to a right to a share in a partnership is to be read as a reference to a right to a share of the assets or income of the partnership.

(7) Sections 104E, 108 and 265 (disposal value in connection with special rate expenditure, effect of disposal to connected person on overseas leasing pool and general provisions about successions) do not apply if an election is made under this section (but see section 267A).

(8) This section does not apply if section 561 applies (transfer or division of UK business).

Effect of election

267

(1) If an election is made under section 266, the following provisions have effect.

(2) For the purposes of making allowances and charges under this Part, relevant plant or machinery is treated as sold by the predecessor to the successor—

(a) when the succession takes place, and

(b) at a price which gives rise to neither a balancing allowance nor a balancing charge.

(3) “Relevant plant or machinery” means any plant or machinery which—

(a) immediately before the succession, was owned by the predecessor, and was either in use or provided and available for use for the purposes of the qualifying activity, and

(b) immediately after the succession, is owned by the successor, and is either in use or provided and available for use for the purposes of the qualifying activity.

(4) Allowances and charges are to be made under this Part to or on the successor as if everything done to or by the predecessor had been done to or by the successor.

(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to the election.

(6) This section is subject to section 267A.

Successions by beneficiaries

268

(1) This section applies if—

(a) a person succeeds to a qualifying activity as a beneficiary under the will or on the intestacy of a deceased person who carried on the qualifying activity,

(b) all of the persons carrying on the qualifying activity before the succession permanently cease to carry it on, and

(2) In relation to the succession and any previous succession occurring on or after the death of the deceased, relevant plant or machinery is treated as if it had been sold to the beneficiary when the succession takes place.

(3) The net proceeds of the sale are treated as being the lesser of—

(a) the market value of the plant or machinery, and

(b) the unrelieved qualifying expenditure which would have been taken into account in calculating the amount of a balancing allowance for the appropriate chargeable period if the disposal value of the plant or machinery had been nil.

“Appropriate chargeable period” means the chargeable period in which the deceased person’s qualifying activity was permanently discontinued.

(4) “Relevant plant or machinery” means plant or machinery which—

(a) was previously owned by the deceased,

(b) passes to the beneficiary with the qualifying activity, and

(5) Subsections (6) and (7) apply if the beneficiary is required to bring a disposal value into account in respect of relevant plant or machinery.

(6) The provisions limiting the amount of the disposal value of property, that is—

(a) section 62 (limit on disposal value: general), and

(b) section 239 (limit on disposal value where additional VAT rebate),

apply in relation to the beneficiary to limit the disposal value by reference to expenditure incurred by the deceased or additional VAT rebates made to the deceased.

(7) Section 73 (limit on disposal value: software and rights to software) applies as if the previous disposal values to be taken into account in determining whether the limit under those provisions is exceeded were those of the deceased.

(8) In this section “qualifying activity”—

(a) does not include an employment or office, but

(b) includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Miscellaneous

Use of plant or machinery for business entertainment

269

(1) If—

(a) a person carrying on a qualifying activity, or

(b) an employee of that person,

provides business entertainment in connection with that activity, the use of plant or machinery for providing the entertainment is to be treated as use for purposes other than those of that activity.

(2) For the purposes of this section—

(a) “entertainment” includes hospitality of any kind, and

(b) the use of an asset for providing entertainment includes the use of an asset for providing anything incidental to the entertainment.

(3) “Business entertainment” does not include anything provided by a person for employees unless its provision for them is incidental to its provision for others.

(4) “Business entertainment” does not include the use of plant or machinery for the provision of anything by a person if—

(a) it is a function of that person’s qualifying activity to provide it, and

(b) it is provided by that person in the ordinary course of that qualifying activity—

(i) for payment, or

(ii) free of charge with the object of advertising to the public generally.

(5) For the purposes of this section—

(a) directors of a company, or

(b) persons engaged in the management of a company,

are to be regarded as employed by the company.

Shares in plant or machinery

270

(1) This Part applies in relation to a share in plant or machinery as it applies (under section 571) in relation to a part of plant or machinery.

(2) For the purposes of this Part, a share in plant or machinery is treated as used for the purposes of a qualifying activity so long as, and only so long as, the plant or machinery is used for the purposes of the qualifying activity.

Part 3 — Industrial buildings allowances

Chapter 1 — Introduction

Industrial buildings allowances

271

(1) Allowances are available under this Part if—

(a) expenditure has been incurred on the construction of a building or structure,

(b) the building or structure is (or, in the case of an initial allowance, is to be)—

(i) in use for the purposes of a qualifying trade,

(ii) a qualifying hotel,

(iii) a qualifying sports pavilion, or

(iv) in relation to qualifying enterprise zone expenditure, a commercial building or structure, and

(c) the expenditure incurred on the construction of the building or structure, or other expenditure, is qualifying expenditure.

(2) In the rest of this Part—

(a) “building” is short for “building or structure”, and

(b) “industrial building” means, subject to Chapter 2 (which defines terms used in subsection (1)(b) etc.), a building or structure which is within subsection (1)(b).

(3) Allowances under this Part are made to the person who for the time being has the relevant interest in the building (see Chapter 3) in relation to the qualifying expenditure (see Chapter 4).

Expenditure on the construction of a building

272

(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.

(3) For the purposes of subsection (2), expenditure incurred for the purposes of a trade on repairs to a building is to be treated as capital expenditure if it is not expenditure that would be allowed to be deducted in calculating the profits of the trade for tax purposes.

Preparation of sites for plant or machinery

273

(1) Subsection (2) applies if—

(a) capital expenditure is or has been incurred in preparing, cutting, tunnelling or levelling land for the purposes of preparing the land as a site for the installation of plant or machinery, and

(b) no allowance could (apart from this section) be made in respect of that expenditure under this Part or Part 2 (plant and machinery allowances).

(2) This Part has effect in relation to the expenditure as if—

(a) the purpose of incurring the expenditure were to prepare the land as a site for the construction of a building, and

(b) the installed plant or machinery were a building.

Chapter 2 — Industrial buildings

Buildings in use for the purposes of a qualifying trade

Trades and undertakings which are “qualifying trades”

274

(1) “Qualifying trade” means—

(a) a trade of a kind described in Table A, or

(b) an undertaking of a kind described in Table B, if the undertaking is carried on by way of trade.

1.	Manufacturing	A trade consisting of manufacturing goods or materials.
2.	Processing	A trade consisting of subjecting goods or materials to a process.This includes (subject to section 276(3)) maintaining or repairing goods or materials.
3.	Storage	A trade consisting of storing goods or materials—(a) which are to be used in the manufacture of other goods or materials,(b) which are to be subjected, in the course of a trade, to a process,(c) which, having been manufactured or produced or subjected, in the course of a trade, to a process, have not yet been delivered to any purchaser, or(d) on their arrival in the United Kingdom from a place outside the United Kingdom.
4.	Agricultural contracting	A trade consisting of—(a) ploughing or cultivating land occupied by another,(b) carrying out any other agricultural operation on land occupied by another, or(c) threshing another’s crops.For this purpose “crops” includes vegetable produce.
5.	Working foreign plantations	A trade consisting of working land outside the United Kingdom used for—(a) growing and harvesting crops,(b) husbandry, or(c) forestry.For this purpose “crops” includes vegetable produce and “harvesting crops” includes the collection of vegetable produce (however effected).
6.	Fishing	A trade consisting of catching or taking fish or shellfish.
7.	Mineral extraction	A trade consisting of working a source of mineral deposits. “Mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth, and for this purpose geothermal energy is to be treated as a natural deposit. “Source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.
1.	Electricity	An undertaking for the generation, transformation, conversion, transmission or distribution of electrical energy.
---	---	---
2.	Water	An undertaking for the supply of water for public consumption.
3.	Hydraulic power	An undertaking for the supply of hydraulic power.
4.	Sewerage	An undertaking for the provision of sewerage services within the meaning of the Water Industry Act 1991 (c. 56) or the Water and Sewerage Services (Northern Ireland) Order 2006.
5.	Transport	A transport undertaking.
6.	Highway undertakings	A highway undertaking, that is, so much of any undertaking relating to the design, building, financing and operation of roads as is carried on—(a) for the purposes of, or(b) in connection with,the exploitation of highway concessions.
7.	Tunnels	A tunnel undertaking.
8.	Bridges	A bridge undertaking.
9.	Inland navigation	An inland navigation undertaking.
10.	Docks	A dock undertaking.A dock includes—(a) any harbour, and(b) any wharf, pier, jetty or other works in or at which vessels can ship or unship merchandise or passengers,other than a pier or jetty primarily used for recreation.

(2) Item 6 of Table B needs to be read with Chapter 9 (application of this Part to highway undertakings).

Building used for welfare of workers

275

A building is in use for the purposes of a qualifying trade if it is—

(a) provided by the person carrying on the qualifying trade for the welfare of workers employed in that qualifying trade, and

(b) in use for the welfare of such workers.

Parts of trades and undertakings

276

(1) Sections 274 and 275 apply in relation to part of a trade or undertaking as they apply in relation to a trade or undertaking.

But this is subject to subsections (2) and (3).

(2) If—

(a) a building is in use for the purpose of a trade or undertaking, and

(b) part only of the trade or undertaking is a qualifying trade,

the building is in use for the purposes of the qualifying trade only if it is in use for the purposes of that part of the trade or undertaking.

(3) Maintaining or repairing goods or materials is not a qualifying trade if—

(a) the goods or materials are employed in a trade or undertaking,

(b) the maintenance or repair is carried out by the person employing the goods or materials, and

Exclusion of dwelling-houses, retail shops, showrooms, hotels and offices etc.

277

(1) A building is not in use for the purposes of a qualifying trade if it is in use as, or as part of, or for any purpose ancillary to the purposes of—

(a) a dwelling-house;

(b) a retail shop, or premises of a similar character where a retail trade or business (including repair work) is carried on;

(d) a hotel;

(e) an office.

(2) Subsection (3) is about buildings constructed for occupation by, or for the welfare of persons employed—

(a) on, or in connection with, working land outside the United Kingdom which is used as described in item 5 of Table A in section 274 (foreign plantations), or

(b) at, or in connection with, working a source of mineral deposits as defined in item 7 of Table A (mineral extraction).

(3) Subsection (1) does not apply to a building which this subsection is about if the building—

(a) is likely to be of little or no value to the person carrying on the trade when the land or source is no longer worked, or

(b) will cease to be owned by that person on the ending of a foreign concession under which the land or source is worked.

(4) “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.

(5) Subsection (1) is subject to section 283 (non-industrial part of building disregarded).

Building used by more than one licensee

278

A building used by more than one licensee of the same person is not in use for the purposes of a qualifying trade unless each licensee uses it, or the part to which the licence relates, for the purposes of a qualifying trade.

Qualifying hotels and sports pavilions

Qualifying hotels

279

(1) A hotel is a qualifying hotel if the following conditions are met—

(a) the accommodation in the hotel is in a building of a permanent nature,

(b) the hotel is open for at least 4 months during April to October, and

(i) it has 10 or more letting bedrooms,

(ii) the sleeping accommodation it offers consists wholly or mainly of letting bedrooms, and

(iii) the services provided for guests normally include the provision of breakfast and an evening meal, the making of beds and the cleaning of rooms.

(2) Whether a hotel meets the conditions in subsection (1)(b) and (c) at any time in a chargeable period is to be determined by reference to the period given under subsections (3) to (5) (“the reference period”).

(3) If the hotel was in use for the purposes of a trade carried on by—

(a) the person claiming the allowance, or

(b) a lessee occupying the hotel under a lease to which the relevant interest is reversionary,

throughout the 12 month period ending with the last day of the chargeable period, the reference period is that 12 month period.

(4) If the hotel was first used for the purposes of a trade carried on as described in subsection (3) after the beginning of the 12 month period referred to there, the reference period is the 12 month period beginning with the date on which it was first so used.

(5) If a hotel does not qualify under subsection (3) because it had fewer than 10 letting bedrooms until too late a date, the reference period is the 12 month period beginning with the date when it had 10 or more letting bedrooms.

(6) A hotel is not to be treated as meeting the conditions in subsection (1)(b) and (c) at any time in a chargeable period after it has ceased altogether to be used.

(7) A building (whether or not on the same site as any other part of the hotel) which is—

(a) provided by the person carrying on the trade for the welfare of workers employed in the hotel, and

(b) in use for the welfare of such workers,

is to be treated for the purposes of this section as part of the hotel.

(8) If a qualifying hotel is carried on by an individual (alone or in partnership), accommodation which, when the hotel is open during April to October, is normally used as a dwelling by—

(a) that individual, or

(b) a member of his family or household,

is to be treated for the purposes of this section as not being part of the hotel.

(9) In this section—

“building” does not include a structure, and

“letting bedroom” means a private bedroom available for letting to the public generally and not normally in the same occupation for more than one month.

Qualifying sports pavilions

280

A building is a qualifying sports pavilion if it is—

(a) occupied by a person carrying on a trade, and

(b) used as a sports pavilion for the welfare of all or any of the workers employed in that trade.

Commercial buildings (enterprise zones)

281

For the purposes of this Part as it applies in relation to qualifying enterprise zone expenditure, “commercial building” means a building which is used—

(a) for the purposes of a trade, profession or vocation, or

(b) as an office or offices (whether or not for the purposes of a trade, profession or vocation),

and which is not in use as, or as part of, a dwelling-house.

Supplementary provisions

Buildings outside the United Kingdom

282

A building outside the United Kingdom which is in use for the purposes of a trade is not an industrial building at any time when the profits of the trade are not assessable in accordance with the rules that apply in calculating trade profits for income tax purposes or corporation tax purposes.

Non-industrial part of building disregarded

283

(1) This section applies if, apart from this section, but taking into account section 571 (parts of buildings etc.)—

(a) part of a building would be an industrial building, and

(b) part (“the non-industrial part”) would not.

(2) If the qualifying expenditure relating to the non-industrial part is no more than 25% of the qualifying expenditure relating to the whole of the building, the whole of the building is an industrial building.

Roads on industrial estates etc.

284

(1) A road on an industrial estate is an industrial building if the estate consists wholly or mainly of buildings that are treated under this Part as industrial buildings.

(2) For the purposes of this Part as it applies in relation to qualifying enterprise zone expenditure, “industrial estate” includes an area (such as a business park) which consists wholly or mainly of commercial buildings.

Cessation of use and temporary disuse of building

285

For the purposes of this Part—

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

(b) if a building is an industrial building immediately before a period of temporary disuse, it is to be treated as being an industrial building during the period of temporary disuse.

Chapter 3 — The relevant interest in the building

General rule as to what is the relevant interest

286

(1) The relevant interest in relation to any qualifying expenditure 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 and to sections 342 (highway undertakings) and 359 (provisions applying on termination of lease).

(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.

Interest acquired on completion of construction

287

For the purposes 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.

Effect of creation of subordinate interest

288

(1) 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.

(2) This is subject to any election under section 290.

Merger of leasehold interest

289

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

(a) being surrendered, or

(b) the person entitled to the interest 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.

Election to treat grant of lease exceeding 50 years as sale

290

(1) Subsection (2) applies if—

(a) expenditure has been incurred on the construction of a building,

(b) a lease of the building is granted out of the interest which is the relevant interest in relation to the expenditure,

(d) the lessor and the lessee elect for subsection (2) to apply.

(2) This Part applies as if—

(a) the grant of the lease were a sale of the relevant interest by the lessor to the lessee at the time when the lease takes effect,

(b) any capital sum paid by the lessee in consideration for the grant of the lease were the purchase price on the sale, and

(c) the interest out of which the lease was granted had at that time ceased to be, and the interest granted by the lease had at that time become, the relevant interest.

(3) The election has effect in relation to all the expenditure—

(a) in relation to which the interest out of which the lease is granted is the relevant interest, and

(b) which relates to the building (or buildings) that is (or are) the subject of the lease.

Supplementary provisions with respect to elections

291

(1) No election may be made under section 290 by a lessor and lessee who are connected persons unless—

(a) the lessor is a body discharging statutory functions, and

(b) the lessee is a company of which it has control.

(2) No election may be made under section 290 if it appears that the sole or main benefit which may be expected to accrue to the lessor from the grant of the lease and the making of an election is obtaining a balancing allowance.

(3) Whether the duration of a lease exceeds 50 years is to be determined—

(a) in accordance with sections 243 and 244 of CTA 2009, and

(b) without regard to section 359(3) (new lease granted as a result of the exercise of an option treated as continuation of old lease).

(4) An election under section 290 must be made by notice to an officer of Revenue and Customs within 2 years after the date on which the lease takes effect.

(5) All such adjustments, by discharge or repayment of tax or otherwise, are to be made as are necessary to give effect to the election.

Chapter 4 — Qualifying expenditure

Introduction

Meaning of “qualifying expenditure”

292

In this Part “qualifying expenditure” means expenditure which is qualifying expenditure under—

Meaning of references to carrying on a trade as a developer

293

For the purposes of this Chapter—

(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.

Qualifying expenditure

Capital expenditure on construction of a building

294

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.

Purchase of unused building where developer not involved

295

(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.

Purchase of building which has been sold unused by developer

296

(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.

Purchase of used building from developer

297

(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

The time limit for qualifying enterprise zone expenditure

298

(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 , the Scottish Ministers or the National Assembly for Wales, 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)).

Application of section 294

299

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.

Application of sections 295 and 296

300

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.

Purchase of building within 2 years of first use

301

(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

Qualifying enterprise zone expenditure where section 295 or 296 applies

302

(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—

$$QExET$where—QE is the qualifying expenditure,E is the part of the expenditure on the construction of the EZ building that is incurred within the time limit, andT is the total expenditure on the construction of the building.$

Purchase of building within 2 years of first use

303

(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—

$Z=LxET$

and

$N=L-Z$

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.

Application of section 303 where developer involved

304

(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—

$Z=CxET$

and

$N=L-LxET$

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—

$Z=DxET$

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

Initial allowances for qualifying enterprise zone expenditure

305

(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—the person incurring the qualifying expenditure, ora lessee of the person incurring the qualifying expenditure.

Amount of initial allowance and period for which allowance made

306

(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.

Building not industrial building when first used etc.

307

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