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Capital Allowances |
33 |
attract a restriction in that allowances on the disposal and the new acquisition must be calculated by reference to disposal value if that is lower than the market value.302 |
CAA 2001 includes rules on the recovery of excess allowance, of allowances which should not have been claimed given at all, for joint lessees and duties to supply information.303 |
| The concept of qualifying purpose is relevant to whether or not the taxpayer’s allowance is reduced from 10% to 0%; some of the concepts are also used in the definition of a protected transaction. The qualifying situations are those in which (1) the buyer uses the asset for short-term leasing, or (2) the lessee uses the asset for short-term leasing and either is resident in the UK or uses it in a trade carried on here, or (3) the buyer uses it for the purposes of a trade other than leasing.304 The purpose of these rules is to exclude the situation in which the lessee uses the asset for personal consumption. The other qualifying purpose rules relate to ships and aircraft transport contains are other qualifying activities; these rule all require that the asset is leased to lessees who use it for purposes other than leasing, and the lessees would have been entitled to capital allowances in respect of the asset if they had incurred the expenditure themselves;305 this provides a fiscal connection between the lessee and the UK. |
| Restrictions apply to leasing partnerships. For example X, Y and Z Ltd are partners who buy plant and claim allowances. X and Y then withdraw from the partnership leaving Z to face the balancing charge, but Z is a non-resident company. Relief under TA 1988, sections 380 and 381 is denied where the scheme has been entered into with a company partner in prospect.306 |
24A.2.12.4 Lessee’s Expenditure |
| Where the lessee (L) incurs capital expenditure on the provision of plant or machinery for the purposes of L’s trade under the terms of L’s lease, the asset is treated as belonging to L provided the trade continues.307 The asset in fact belongs to the owner-lessor (O). When the lease ends the rules as to disposal value and balancing charges are applied as if the original expenditure had been incurred by O. Thus, the allowance is given to L, but any balancing charge may be levied on O. As a result of the rules reversing Stokes v Costain Property Investments Ltd308 this does not now apply to Plant and Machinery which becomes part of a building on other land. |
| 24A.2.13 Ships |
| Ships have, for many years have been treated specially for capital allowance purposes. In effect, free depreciation is allowed.309 Expenditure on ships is not pooled. There is no statutory definition of a ship, but there have been many decisions on its meaning under the Merchant Shipping Acts. A hopper barge without engine or sail was held to be a ship,310 but a floating gas container without power and not fitted for navigation was not.311 A statutory definition |