Capital Allowances

27

1. the asset ceases to belong to T, eg it is sold;
2. T loses possession of the asset in circumstances in which it is reasonable to assume that the loss is permanent;
3. the asset has been used in mineral exploration and access and has been abandoned on site;
4. the asset ceases to exist as such (as a result of destruction, dismantling or otherwise);
5. the asset begins to be used wholly or partly for purposes other than those of the trade;²³⁷ or
6. the trade is permanently discontinued

When a disposal event occurs the relevant disposal value must be brought into account.²³⁸

In the final chargeable period of the activity there may be a balancing charge—if the cumulative allowances exceed the expenditure. Alternatively there may be a balancing allowance if the allowances are less than the²³⁹ expenditure. There cannot be a writing down allowance in this final period.²⁴⁰

24A.2.7.1    Amounts

The disposal value to be brought into account depends upon the event by reason of which it is taken into account,²⁴¹ but it cannot exceed the capital expenditure incurred on that item, any excess being subject to capital gains legislation. The disposal value to be deducted from the pool must not exceed the cost of the plant to the person disposing of it.

24A.2.7.1.1    Market Value    Where the plant was acquired as a result of a transaction or series of transactions between connected persons, the greatest acquisition expenditure incurred in any of the transactions concerned is the maximum disposal value.²⁴² This rule applies not only on a disposal to a connected person, or to an acquisition from a connected person but extends to an acquisition as a result of a transaction between connected persons, with whom the disposer need not be connected.²⁴³ If the asset has been sold,²⁴⁴ the proceeds of sale are taken, and if that sale has been affected by some event, for example if the asset has been damaged, account is also taken of any insurance or compensation money received.

Where the market value is greater than the proceeds of sale, market value will be taken unless there is a charge to tax under schedule E or the buyer can, in turn, claim a capital allowance in respect of plant or machinery or a research and development allowance.²⁴⁵ The reason for this is presumably because the low sale price will give rise, in turn, to low allowances. There is also a bar on taking an undervalue if the buyer is a dual resident investment company connected with the seller—introduced as part of the general drive against such companies.²⁴⁶

24A.2.7.1.2    End of Asset    If the event is the demolition or destruction of the asset, the disposal value is the sum received for the remains, together with any insurance or compensation. In other

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