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

articles Not indexed

Reform history JSON API

(b) if the liability accrued before the chargeable period in which the relevant trade is set up and commenced, that chargeable period,

rather than for the relevant chargeable period specified in section 441(2).

Additional VAT rebate generates disposal value

448

(1) This section applies if—

(a) a person has incurred qualifying expenditure, and

(b) an additional VAT rebate is made to the person in respect of that expenditure.

(2) But this section does not apply if by the time the rebate is made—

(a) the person has ceased to own the asset representing that expenditure, or

(b) that asset has been demolished or destroyed.

(3) And this section does not apply if the rebate falls to be brought into account for the purpose of making allowances and charges under Part 2 ... (plant and machinery allowances ...).

(4) The person must bring the amount of the rebate into account—

(a) as a disposal value in respect of the qualifying expenditure for the appropriate chargeable period, or

(b) if the person would have to bring a disposal value into account under section 443(1) in respect of that expenditure for that chargeable period, as an addition to that disposal value.

(5) “Appropriate chargeable period” means—

(a) the chargeable period in which the rebate accrues, or

(b) if the rebate accrued before the chargeable period in which the relevant trade is set up and commenced, that chargeable period.

Effect on balancing charges of additional VAT rebates in earlier chargeable periods

449

(1) Section 442 (balancing charges) has effect subject to this section if—

(a) an allowance is made to a person for a chargeable period (“the original period”) in respect of qualifying expenditure,

(b) the person is required to bring a disposal value into account for a later chargeable period in respect of that expenditure, and

(c) the person has been required by section 448(4)(a) to bring one or more disposal values (“VAT disposal values”) into account in respect of that expenditure for one or more chargeable periods after the original period but before the later chargeable period.

(2) In relation to the later chargeable period, subsection (3)(a) of section 442 applies as if the unclaimed allowance were reduced by—

$$DV-BC$where—DV is the total amount of the VAT disposal values, andBC is the total amount of any balancing charges to which the person is liable under that section as a result of bringing into account the VAT disposal values.$

(3) In relation to the later chargeable period, subsection (3)(b) of section 442 applies as if the allowance made in respect of the qualifying expenditure were reduced by BC.

Chapter 5 — Supplementary provisions

Giving effect to allowances and charges

450

(1) An allowance or charge to which a person is entitled or liable under this Part for a chargeable period is to be given effect in calculating the profits of the relevant trade, by treating—

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

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

(2) This section is subject to section 6E (giving effect to allowances and charges: NI rate activity cases).

Sales: time of cessation of ownership

451

Any reference in this Part to the time when a person ceases to own an asset is to be read, in the case of a sale, as a reference to whichever is the earlier of—

(a) the time of completion, and

(b) the time when possession is given.

Part 7 — Know-how allowances

Chapter 1 — Introduction

Know-how allowances

452

(1) Allowances are available under this Part if a person incurs qualifying expenditure on the acquisition of know-how.

(2) In this Part “know-how” means any industrial information or techniques likely to assist in—

(a) manufacturing or processing goods or materials,

(b) working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or

(3) In subsection (2)(b)—

(a) “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, and

(b) “source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.

Know-how as property

453

(1) Know-how is to be treated as property for the purposes of this Act.

(2) References in this Act to the purchase or sale of property include the acquisition or disposal of know-how.

Chapter 2 — Qualifying expenditure

Qualifying expenditure

454

(1) In this Part “qualifying expenditure” means, subject to section 455, capital expenditure incurred on the acquisition of know-how by a person if—

(a) the person is carrying on a trade at the time of the acquisition and the know-how is acquired for use in that trade,

(b) the person acquires the know-how and subsequently sets up and commences a trade in which it is used,

(c) the person acquires the know-how together with the trade or part of a trade in which it was used and the parties to the acquisition make an election under section 194 of ITTOIA 2005 or under section 178 of CTA 2009 (consideration for know-how on disposal of trade to be treated as payment for goodwill unless parties otherwise elect), or

(d) the person acquires the know-how together with the trade or part of a trade in which it was used and the trade in question was, before the acquisition, carried on wholly outside the United Kingdom.

(2) The same expenditure may not be taken into account as qualifying expenditure in relation to more than one trade.

(3) Qualifying expenditure incurred before the setting up and commencement of the relevant trade is to be treated for the purposes of this Part as incurred when the trade is set up and commenced.

(4) “Relevant trade” means the trade by reference to which expenditure is qualifying expenditure.

Excluded expenditure

455

(1) Expenditure on the acquisition of know-how is not qualifying expenditure to the extent that it is otherwise deducted for tax purposes.

(2) Expenditure on the acquisition of know-how is not qualifying expenditure if—

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

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

(3) In subsection (2) “body of persons” includes a partnership.

(4) Expenditure on the acquisition of know-how is not qualifying expenditure if it is treated as a payment for goodwill under section 194(3) of ITTOIA 2005 or under section 178(3) of CTA 2009 (consideration for know-how on disposal of trade to be treated as payment for goodwill, unless parties otherwise elect etc.).

Chapter 3 — Allowances and charges

Pooling of expenditure

456

(1) Qualifying expenditure has to be pooled for the purpose of determining a person’s entitlement to writing-down allowances and balancing allowances and liability to balancing charges.

(2) There is a separate pool for each trade in respect of which the person has qualifying expenditure.

Determination of entitlement or liability

457

(1) Whether a person is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period is determined separately for each pool of qualifying expenditure and depends on—

(a) the available qualifying expenditure in that pool for that period (“AQE”), and

(b) the total of any disposal values to be brought into account in that pool for that period (“TDV”).

(2) If AQE exceeds TDV, the person is entitled to a writing-down allowance or a balancing allowance for the period.

(3) If TDV exceeds AQE, the person is liable to a balancing charge for the period.

(4) The entitlement under subsection (2) is to a writing-down allowance except for the final chargeable period when it is to a balancing allowance.

(5) The final chargeable period is the chargeable period in which the trade is permanently discontinued.

Amount of allowances and charges

458

(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period is 25% of the amount by which AQE exceeds TDV.

(2) If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.

(3) If the trade has been carried on for part only of the chargeable period, the amount is proportionately reduced.

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

(5) The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDV exceeds AQE.

(6) The amount of the balancing allowance to which a person is entitled for the final chargeable period is the amount by which AQE exceeds TDV.

Available qualifying expenditure

459

A person’s available qualifying expenditure in a pool for a chargeable period consists of—

(a) any qualifying expenditure allocated to the pool for that period in accordance with section 460, and

(b) any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 461.

Allocation of qualifying expenditure to pools

460

(1) The following rules apply to the allocation of a person’s qualifying expenditure to a pool.

(2) An amount of qualifying expenditure is not to be allocated to the pool for a chargeable period if that amount has been taken into account in determining the person’s available qualifying expenditure for an earlier chargeable period.

(3) Qualifying expenditure is not to be allocated to the pool for a chargeable period before that in which the expenditure is incurred.

Unrelieved qualifying expenditure

461

(1) A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period AQE exceeds TDV.

(2) The amount of the unrelieved qualifying expenditure is—

(a) the excess less the writing-down allowance made for the period, or

(b) if no writing-down allowance is claimed for the period, the excess.

(3) No amount may be carried forward as unrelieved qualifying expenditure from the final chargeable period.

Disposal values

462

(1) A person is required to bring a disposal value into account for the chargeable period in which he sells know-how on which he has incurred qualifying expenditure.

(2) The disposal value to be brought into account is the net proceeds of the sale, so far as they consist of capital sums.

(3) But no disposal value need be brought into account if the consideration received for the sale is treated as a payment for goodwill under section 194(2) of ITTOIA 2005 or under section 178(2) of CTA 2009 (consideration for know-how on disposal of trade to be treated as payment for goodwill, unless parties otherwise elect).

Giving effect to allowances and charges

463

An allowance or charge to which a person is entitled or liable under this Part for a chargeable period is to be given effect in calculating the profits of the trade, by treating—

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

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

Part 8 — Patent allowances

Chapter 1 — Introduction

Patent allowances

464

(1) Allowances are available under this Part if a person incurs qualifying expenditure on the purchase of patent rights.

(2) In this Part “patent rights” means the right to do or authorise the doing of anything which would, but for that right, be an infringement of a patent.

Future patent rights

465

(1) References in this Part to expenditure incurred on the purchase of patent rights include expenditure incurred on obtaining a right to acquire future patent rights.

(2) If a person—

(a) incurs expenditure on obtaining a right to acquire future patent rights, and

(b) subsequently acquires those rights,

the expenditure is to be treated as having been expenditure on the purchase of those rights.

(3) “A right to acquire future patent rights” means a right to acquire in the future patent rights relating to an invention in respect of which the patent has not yet been granted.

(4) References in this Part to the proceeds of a sale of patent rights include a sum received from a person which is treated under this section as expenditure incurred by him on the purchase of patent rights.

Grant of licences

466

(1) The acquisition of a licence in respect of a patent is to be treated as the purchase of patent rights.

(2) The grant of a licence in respect of a patent is to be treated as a sale of part of patent rights.

(3) But the grant by a person entitled to patent rights of an exclusive licence is to be treated as a sale of the whole of those rights.

(4) “Exclusive licence” means a licence to exercise those rights to the exclusion of the grantor and all other persons for the period remaining until the rights come to an end.

Chapter 2 — Qualifying expenditure

Qualifying expenditure

467

Expenditure is qualifying expenditure only if it is—

(a) qualifying trade expenditure, or

(b) qualifying non-trade expenditure.

Qualifying trade expenditure

468

(1) “Qualifying trade expenditure” means capital expenditure incurred by a person on the purchase of patent rights for the purposes of a trade within the charge to tax carried on by the person.

(2) The same expenditure may not be taken into account as qualifying trade expenditure in relation to more than one trade.

(3) Expenditure incurred for the purposes of a trade by a person about to carry on the trade is to be treated as if it had been incurred by him on the first day on which he carries on the trade.

(4) But subsection (3) does not apply if the person has before that day sold all the rights on the purchase of which the expenditure was incurred.

Qualifying non-trade expenditure

469

“Qualifying non-trade expenditure” means capital expenditure incurred by a person on the purchase of patent rights if—

(a) any income receivable by the person in respect of the rights would be liable to tax, and

(b) the expenditure is not qualifying trade expenditure.

Chapter 3 — Allowances and charges

Pooling of expenditure

470

(1) Qualifying expenditure has to be pooled for the purpose of determining a person’s entitlement to writing-down allowances and balancing allowances and liability to balancing charges.

(2) There is a separate pool—

(a) for each trade in respect of which the person has qualifying trade expenditure, and

(b) for all of the person’s qualifying non-trade expenditure.

Determination of entitlement or liability

471

(1) Whether a person is entitled to a writing-down allowance or a balancing allowance, or liable to a balancing charge, for a chargeable period is determined separately for each pool of qualifying expenditure and depends on—

(a) the available qualifying expenditure in that pool for that period (“AQE”), and

(b) the total of any disposal receipts to be brought into account in that pool for that period (“TDR”).

(2) If AQE exceeds TDR, the person is entitled to a writing-down allowance or a balancing allowance for the period.

(3) If TDR exceeds AQE, the person is liable to a balancing charge for the period.

(4) The entitlement under subsection (2) is to a writing-down allowance except for the final chargeable period when it is to a balancing allowance.

(5) The final chargeable period for a pool to which qualifying trade expenditure has been allocated is the chargeable period in which the trade is permanently discontinued.

(6) The final chargeable period for a pool to which qualifying non-trade expenditure has been allocated is the chargeable period in which the last of the patent rights on which the person has incurred qualifying non-trade expenditure—

(a) comes to an end without any of those rights being revived, or

(b) is wholly disposed of.

Amount of allowances and charges

472

(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period is 25% of the amount by which AQE exceeds TDR.

(2) If the chargeable period is more or less than a year, the amount is proportionately increased or reduced.

(3) If in the case of qualifying trade expenditure the trade has been carried on for part only of the chargeable period, the amount is proportionately reduced.

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

(5) The amount of the balancing charge to which a person is liable for a chargeable period is the amount by which TDR exceeds AQE.

(6) The amount of the balancing allowance to which a person is entitled for the final chargeable period is the amount by which AQE exceeds TDR.

Available qualifying expenditure

473

A person’s available qualifying expenditure in a pool for a chargeable period consists of—

(a) any qualifying expenditure allocated to the pool for that period in accordance with section 474, and

(b) any unrelieved qualifying expenditure carried forward in the pool from the previous chargeable period under section 475.

Allocation of qualifying expenditure to pools

474

(1) The following rules apply to the allocation of a person’s qualifying expenditure to a pool.

(2) An amount of qualifying expenditure is not to be allocated to the pool for a chargeable period if that amount has been taken into account in determining the person’s available qualifying expenditure for an earlier chargeable period.

(3) Qualifying expenditure is not to be allocated to the pool for a chargeable period before that in which the expenditure is incurred.

(4) Qualifying expenditure incurred on patent rights is not to be allocated to the pool for a chargeable period if in any earlier period those rights—

(a) have come to an end without any of them having been revived, or

(b) have been wholly disposed of.

Unrelieved qualifying expenditure

475

(1) A person has unrelieved qualifying expenditure to carry forward from a chargeable period if for that period AQE exceeds TDR.

(2) The amount of the unrelieved qualifying expenditure is—

(a) the excess less the writing-down allowance made for the period, or

(b) if no writing-down allowance is claimed for the period, the excess.

(3) No amount may be carried forward as unrelieved qualifying expenditure from the final chargeable period.

Disposal value of patent rights

476

(1) In this Chapter “disposal receipt” means a disposal value that a person is required to bring into account in accordance with—

(a) this section, or

(b) section 614BS of ITA 2007 or section 918 of CTA 2010 (cases where expenditure taken into account under Part 2, 5 or 8 of this Act) or any other enactment.

(2) A person is required to bring a disposal value into account for the chargeable period in which he sells the whole or a part of any patent rights on which he has incurred qualifying expenditure.

(3) Subject to section 477, the disposal value to be brought into account is the net proceeds of the sale, so far as they consist of capital sums.

Limit on amount of disposal value

477

(1) The amount of any disposal value, or the total amount of any disposal values, required to be brought into account by a person—

(a) on the sale of the whole of any patent rights, or

(b) on one or more sales of part of any patent rights,

is limited to the capital expenditure incurred by the person on purchasing the rights.

(2) But subsection (3) applies if the person acquired the rights as a result of—

(a) a transaction which was between connected persons, or

(b) a series of transactions each of which was between connected persons.

(3) That amount, or total amount, is limited to the capital expenditure on purchasing the rights incurred by whichever party to the transaction, or to any of the transactions, incurred the greatest such expenditure.

Chapter 4 — Giving effect to allowances and charges

Persons having qualifying trade expenditure

478

An allowance or charge to which a person is entitled or liable under this Part for a chargeable period in respect of qualifying trade expenditure is to be given effect in calculating the profits of the trade, by treating—

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

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

Persons having qualifying non-trade expenditure: income tax

479

(1) This section applies for income tax purposes if a person is entitled or liable under this Part to an allowance or charge for a chargeable period (“the current tax year”) in respect of qualifying non-trade expenditure.

(2) An allowance is to be given effect by deducting it from or setting it off against the person’s income from patents for the current tax year.

(2A) The allowance is given effect at Step 2 of the calculation in section 23 of ITA 2007.

(3) If the amount to be deducted from or set off against the person’s income from patents for that tax year exceeds the amount of that income, the excess must be deducted from or set off against the person’s income from patents for the next tax year, and so on for subsequent tax years.

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

Persons having qualifying non-trade expenditure: corporation tax

480

(1) This section applies for corporation tax purposes if a company is entitled or liable under this Part to an allowance or charge for a chargeable period (“the current accounting period”) in respect of qualifying non-trade expenditure.

(2) An allowance is to be given effect by deducting it from the company’s income from patents for the current accounting period.

(3) If the amount to be deducted from the company’s income from patents for that period exceeds the amount of that income, the excess must (if the company remains within the charge to tax) be deducted from its income from patents for the next accounting period, and so on for subsequent accounting periods.

(4) A charge is to be given effect by treating the charge as income of the company from patents.

Chapter 5 — Supplementary provisions

Anti-avoidance: limit on qualifying expenditure

481

(1) In the two cases given below, the amount (if any) by which the capital expenditure incurred by a person (“the buyer”) on the purchase of patent rights exceeds the relevant limit is to be left out of account in determining the buyer’s qualifying expenditure.

(2) The first case is where the buyer and the seller are connected with each other.

(3) The second case is where it appears that the sole or main benefit which (but for this section) might have been expected to accrue to the parties from—

(a) the sale, or

(b) transactions of which the sale is one,

was obtaining an allowance under this Part.

(4) If the seller is required to bring a disposal value into account under this Part because of the sale, the relevant limit is that disposal value.

(5) If subsection (4) does not apply but the seller—

(a) receives a capital sum on the sale, and

(b) is chargeable to tax in respect of that sum in accordance with section 587 of ITTOIA 2005 or section 912 of CTA 2009,

the relevant limit is that sum.

(6) If neither subsection (4) nor subsection (5) applies, the relevant limit is whichever of the following is the smallest—

(a) the market value of the rights;

(b) if the seller incurred capital expenditure on acquiring the rights, the amount of that expenditure;

(c) if a person connected with the seller incurred capital expenditure on acquiring the rights, the amount of that expenditure.

Sums paid for Crown use etc. treated as paid under licence

482

(1) This section applies if an invention which is the subject of a patent is used by or for the services of—

(a) the Crown under sections 55 to 59 of the Patents Act 1977 (c. 37), or

(b) the government of a country outside the United Kingdom under corresponding provisions of the law of that country.

(2) The use is to be treated as having taken place under a licence.

(3) Sums paid in respect of the use are to be treated as having been paid under a licence.

Meaning of “income from patents”

483

For the purposes of this Part a person’s “income from patents” means—

(a) royalties or other sums paid in respect of the use of a patent,

(b) balancing charges to which the person is liable under this Part, and

(c) amounts on which tax is payable under section 587, 593 or 594 of ITTOIA 2005 or under section 912 or 918 of CTA 2009 (taxation of receipts from sale of patent rights).

Part 9 — Dredging allowances

Qualifying expenditure on dredging, etc.

Dredging allowances

484

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

(2) In this Part “qualifying trade” means a trade or undertaking the whole or part of which—

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

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

(2A) If a company or partnership is as a result of section 6D (NI rate activity treated as separate trade) treated for the purpose of this Act as carrying on two separate trades, each of them is for the purposes of this Part to be treated as a qualifying trade if the separate trades would together be so treated.

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

(4) Subject to subsection (3), “dredging” includes—

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

(i) by whatever means it is removed, and

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

(b) the widening of an inland waterway.

Qualifying expenditure

485

(1) Expenditure on dredging is qualifying expenditure if—

(a) it is capital expenditure,

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

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

(2) If capital expenditure is incurred—

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

(b) partly for other purposes,

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

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

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

(b) the part which is not,

were separate trades.

Pre-trading expenditure of qualifying trades, etc.

486

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

(2) If a person incurs capital expenditure—

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

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

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

Writing-down and balancing allowances

Writing-down allowances

487

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

(a) qualifying expenditure has been incurred on dredging,

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

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

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

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

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

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

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

Balancing allowances

488

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

(a) qualifying expenditure has been incurred on dredging,

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

(i) permanently discontinued, or

(ii) sold,

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

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

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

(a) the permanent discontinuance of a trade does not include an event treated as a permanent discontinuance under section 577(2A) of this Act or section 18 of ITTOIA 2005 (effect of company ceasing to trade etc.), and

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

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

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

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

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

In this subsection “body of persons” includes a partnership.

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

(a) the sale, or

(b) transactions of which the sale is one,

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

Giving effect to allowances

489

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

(2) This section is subject to section 6E (giving effect to allowances and charges: NI rate activity cases).

Part 10 — Assured tenancy allowances

Chapter 1 — Introduction

Assured tenancy allowances

490

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

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

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

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

(3) “Assured tenancy” means—

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

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

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

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

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

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

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

Allowances available in relation to old expenditure only

491

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

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

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

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

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

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

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

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

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

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

Meaning of “approved body”

492

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

Expenditure on the construction of a building

493

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

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

Chapter 2 — The relevant interest

Introduction

494

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

(a) the relevant interest in the building, and

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

The relevant interest in the building

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

495

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

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

(3) If—

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

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

the reversionary interest is the relevant interest.

Interest acquired on completion of construction

496

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

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

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

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

Effect of creation of subordinate interest

497

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.

Merger of leasehold interest

498

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

(a) being surrendered, or

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

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

Provisions applying on termination of lease

499

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

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

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

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

(5) If on the termination of the lease—

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

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

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

The relevant interest in the dwelling-house

500

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

Chapter 3 — Qualifying expenditure

Capital expenditure on construction

501

If—

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

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

the capital expenditure is qualifying expenditure.

Purchase of unused dwelling-house where developer not involved

502

(1) This section applies if—

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

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

(d) section 503 (purchase of dwelling-house sold unused by developer) does not apply.

(2) The lesser of—

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

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

is qualifying expenditure.

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

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

Purchase of dwelling-house sold unused by developer

503

(1) This section applies if—

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

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

(2) If—

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

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

the capital sum is qualifying expenditure.

(3) If—

(a) the sale by the developer was not the only sale before the first use of any dwelling-house comprised in the building, and

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

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

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

(5) For the purposes of this section—

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

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

Chapter 4 — Qualifying dwelling-houses

Requirements relating to the landlord

504

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

(a) a company, and

(b) the person who—

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

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

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

(a) before 5th May 1983, or

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

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

Qualifying dwelling-houses: exclusions

505

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

Exclusion 1The landlord under the tenancy is—a housing association which is approved for the purposes of Chapter 7 of Part 13 of CTA 2010 , ora self-build society within the meaning of the Housing Associations Act 1985 (c. 69).

Exclusion 2The landlord and the tenant are connected persons.

Exclusion 3The tenant is a director of a company which is or is connected with the landlord.

Exclusion 4The landlord is a close company and the tenant is, for the purposes of Part XI of ICTA—a participator in that company, oran associate of such a participator.

Exclusion 5The tenancy is entered into as part of a mutual arrangement for avoidance.

(2) In exclusion 5, a “mutual arrangement for avoidance” means an arrangement—

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

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

Dwelling-house ceasing to be qualifying dwelling-house

506

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

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

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

(2) For the purposes of this Part—

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

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

Chapter 5 — Writing-down allowances

Entitlement to and calculation of writing-down allowances

Entitlement to writing-down allowance

507

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

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

(b) that person is or has been an approved body,

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

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

Basic rule for calculating amount of allowance

508

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

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

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

Calculation of allowance after sale of relevant interest

509

(1) This section applies if—

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

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

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

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

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

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

510

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

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

Interpretation

Qualifying expenditure attributable to dwelling-house

511

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

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

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

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

(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.

Residue of qualifying expenditure attributable to dwelling-house

512

(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

When balancing adjustments are made

513

(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.

Balancing events

514

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).

Proceeds from balancing events

515

(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—

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

Dwelling-house a qualifying dwelling-house throughout

516

(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.

Dwelling-house not a qualifying dwelling-house throughout

517

(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.

Overall limit on balancing charge

518

(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).

Recovery of old initial allowances made on incorrect assumptions

519

(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.

The relevant period of ownership

520

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.

Starting expenditure

521

(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.

Adjusted net cost

522

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

Chapter 7 — Writing off qualifying expenditure attributable to dwelling-house

Introduction

523

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.

Writing off initial allowances

524

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.

Writing off writing-down allowances

525

(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.

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

526

(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.

Writing off or increase of expenditure where balancing adjustment made

527

(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.

Treatment of demolition costs

528

(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

Giving effect to allowances and charges

529

(1) If a person who is entitled or liable to an allowance or charge for a chargeable period was carrying on a UK property 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.

(1A) If the person entitled or liable to an allowance or charge for a chargeable period... was not carrying on a UK property business at any time in that period, the allowance or charge is to be given effect by treating the person as having carried 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.

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

Apportionment of sums partly referable to non-qualifying assets

530

(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.

Meaning of “dwelling-house”, “lease” etc.

531

(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

The general rule excluding contributions

532

(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.

Exclusion of contributions to dredging

533

(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

Northern Ireland regional development grants

534

(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).

Insurance or compensation money

535

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.

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

536

(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 (but see subsection (6)).

(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) a UK property business;

(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(iii) an ... overseas property business;

(iiia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(iv) a profession or vocation;

(v) any concern listed in section 12(4) of ITTOIA 2005 or section 39(5) of CTA 2009 (mines, transport undertakings etc.);

(vi) the management of an investment company;

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

(6) Subsection (1) does not apply for the purposes of Part 2A (structures and buildings allowances).

Chapter 2 — Contribution allowances

Contribution allowances under Parts 2, 2A, 3, 4 and 5

Conditions for contribution allowances under Parts 2 to 5

537

(1) This section gives general conditions for making contribution allowances under Parts 2, 2A ... and 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, 2A ... 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).

Plant and machinery

538

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

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

(aa) C's contribution is to expenditure on the provision of plant or machinery, 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 plant or machinery,

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

(c) the plant or machinery were at all material times plant or machinery in use for the purposes of C’s trade or relevant activity.

(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.

Industrial buildings

539

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

Agricultural buildings

540

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

Mineral extraction

541

(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.

Effect of transfers of C’s trade on contribution allowances under Parts 3, 4 and 5

Transfer of C’s trade or relevant activity

542

(1) Subsections (2) and (3) apply for the purposes of contribution allowances under Part 5 if—

(a) C’s contribution was made for the purposes of C’s trade ..., and

(b) the whole or a part of the trade ... is subsequently transferred.

(2) If the whole of the trade ... 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.

(3) If a part of the trade ... 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.

Contribution allowances under Part 9

543

A person who contributes a capital sum to expenditure incurred by another person on dredging is to be regarded for the purposes of Part 9 as incurring capital expenditure on that dredging.

Part 12 — Supplementary provisions

Chapter 1 — LONG-TERM business

Management assets

544

(1) No allowances are to be given or charges imposed in respect of management assets of any long-term business carried on by a company except under Part 2 (plant and machinery allowances) or Part 2A (structures and buildings allowances).

(2) An asset is a management asset of any long-term business carried on by a company if it is provided for use, or used, for the management of that business of that company.

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

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investment assets

545

(1) This section applies if a company which is carrying on any long-term business holds an asset for purposes other than the management of that business.

(2) “Investment asset” means an asset that is within subsection (1).

(3) No allowance in respect of an investment asset is to be taken into account in calculating for corporation tax purposes the profits of any non-BLAGAB long-term business carried on by the company.

Chapter 2 — Additional VAT liabilities and rebates: interpretation, etc.

Introduction

546

This Chapter has effect for the interpretation of, and for otherwise supplementing—

(a) Chapter 18 of Part 2 (plant and machinery allowances: additional VAT liabilities and rebates),

(aa) Chapter 7 of Part 2A (structures and buildings allowances: additional VAT liabilities and rebates),

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ba) Chapter 10 of Part 3A (business premises renovation allowances: additional VAT liabilities and rebates),

“Additional VAT liability” and “additional VAT rebate”

547

(1) “Additional VAT liability” means an amount which a person becomes liable to pay by way of adjustment under the VAT capital items legislation in respect of input tax.

(2) “Additional VAT rebate” means an amount which a person becomes entitled to deduct by way of adjustment under the VAT capital items legislation in respect of input tax.

Time when additional VAT liability or rebate is incurred or made

548

(1) The time when a person incurs an additional VAT liability or an additional VAT rebate is made to a person is the last day of the period—

(a) which is one of the periods making up the VAT period of adjustment applicable to the asset in question under the VAT capital items legislation, and

(b) in which the increase or decrease in use giving rise to the liability or rebate occurs.

(2) “VAT period of adjustment” means a period specified under the VAT capital items legislation by reference to which adjustments are made in respect of input tax.

Chargeable period in which, and time when, additional VAT liability or rebate accrues

549

(1) The chargeable period in which, and the time when, an additional VAT liability or additional VAT rebate accrues is set out in the Table.

Circumstances	Chargeable period	Time of accrual
The liability or rebate is accounted for in a VAT return.	The chargeable period which includes the last day of the period to which the VAT return relates.	The last day of the period to which the VAT return relates.
The Commissioners of Customs and Excise assess the liability or rebate as due before a VAT return is made.	The chargeable period which includes the day on which the assessment is made.	The day on which the assessment is made.
The relevant activity is permanently discontinued before the liability or rebate is accounted for in a VAT return or assessed by the Commissioners.	The chargeable period in which the relevant activity is permanently discontinued.	The last day of the chargeable period in which the relevant activity is permanently discontinued.

(2) In the Table—

(a) “VAT return” means a return made to the Commissioners of Customs and Excise for the purposes of value added tax, and

(b) “the relevant activity” means the trade or, in relation to Part 2, the qualifying activity to which the additional VAT liability or additional VAT rebate relates.

Apportionment of additional VAT liabilities and rebates

550

(1) This section applies if—

(a) any provision of this Act requires an allowance or charge to which a person is entitled or liable in respect of any qualifying expenditure to be determined by reference to—

(i) a proportion only of that expenditure, or

(ii) a proportion only of what that allowance or charge would have been apart from that provision, and

(b) the person incurs an additional VAT liability or an additional VAT rebate is made to the person in respect of that expenditure.

(2) The additional VAT liability or rebate is subject to the same apportionment as the original expenditure, allowance or charge.

Supplementary

551

(1) In this Chapter, “the VAT capital items legislation” means any Act or instrument (whenever passed or made) providing for the proportion of input tax on an asset of a specified description which may be deducted by a person from his output tax to be adjusted from time to time as a result of—

(a) an increase, or

(b) a decrease,

in the extent to which the asset is used by him for making taxable supplies (or taxable supplies of a specified class or description) during a specified period.

(2) In this Chapter “the VAT capital items legislation” also includes any other Act or instrument (whenever passed or made) which provides for Article 20(2) to (4) of the Sixth VAT Directive to be given effect.

(3) “The Sixth VAT Directive” means the Sixth Directive (77/388/EEC) of the Council of the European Communities on Value Added Tax, dated 17th May 1977.

(4) In this Chapter “input tax”, “output tax” and “taxable supply” have the same meaning as in VATA 1994.

Chapter 3 — Disposals of oil licences: provisions relating to Parts 5 and 6

Introduction

Meaning of “oil licence” and “interest in an oil licence”

552

(1) In this Chapter “oil licence” means a UK oil licence or a foreign oil concession.

(2) In this Chapter “UK oil licence” means a licence under—

(a) Part I of the Petroleum Act 1998 (c. 17) (“the 1998 Act”), or

(b) the Petroleum (Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)) (“the 1964 Act”),

authorising the winning of oil.

(3) In this Chapter “foreign oil concession” means any right which—

(a) is a right to search for or win oil that exists in its natural condition in a place to which neither the 1998 Act nor the 1964 Act applies, and

(b) is conferred or exercisable (whether or not under a licence) in relation to a particular area.

(4) In this Chapter “interest in an oil licence” includes, if there is an agreement which—

(a) relates to oil from the whole or a part of the licensed area, and

(b) was made before the extraction of the oil to which it relates,

any entitlement under the agreement to, or to a share of, that oil or the proceeds of its sale.

Oil licences relating to undeveloped areas

Consideration to be treated as nil

553

(1) This section applies if—

(a) there is a material disposal of an oil licence which, at the time of the disposal, relates to an undeveloped area, and

(b) any of the consideration for the disposal consists of—

(i) another oil licence, or an interest in another oil licence, which at that time relates to an undeveloped area, or

(ii) an obligation to undertake exploration work or appraisal work in an area which is or forms part of the licensed area in relation to the licence disposed of.

(2) The value of the consideration within subsection (1)(b) is to be treated as nil for the purposes of—

(a) Part 5 (mineral extraction allowances),

(b) Part 6 (research and development allowances), and

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