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allowances made.415 In making these calculations any periods during which the relevant interest was held by the Crown, or by someone outside the charge to UK tax, are treated as if any allowances that could have been claimed by an ordinary taxpayer had been claimed.416 The calculations are straightforward when the building has been used as an industrial building—or for research and development throughout the period.417 More precisely, the period is described as the relevant period of ownership, which is defined as running from the date the building was first used or the date of any later sale down to the date of the balancing event.418 |
24A.3.6.2 Example 1 |
V’s building cost £100,000 in the first year, but is destroyed in the 13th year. The total allowances will be £52,000 (13 years at 4%), making a residue of expenditure of £48,000. If compensation amounts to £40,000, there will be a balancing allowance of £8,000 to bring the total allowances in line with total expenditure. If the compensation is £60,000, there will be a balancing charge of £12,000. |
| If the building was not used for a qualifying trade throughout the period, the balancing adjustment must reflect this fact. Allowances or charges are made by reference to what one might call the adjusted net cost of the building, which is the excess of capital expenditure over the proceeds, reduced in the proportion that the period of qualifying use bears to the whole period.419 The concept of starting expenditure has to be used here also but is defined differently from the situation covered in example 1.420 |
24A.3.6.3 Example 2 |
| An industrial building was constructed for £25,000. It was used for a qualifying purpose for 2 years, then as an office (a non-qualifying purpose) for 1 year and then reverted to a qualifying use for the fourth year. The building is sold at the end of the fifth year for £17,000. The balancing adjustment is calculated as follows: (1) calculate the net cost of the building to the taxpayer (£8,000) and then the proportion of that figure which is attributable to qualifying use (£6,400, ie 4/5 £8,000); (2) calculate the allowances given (£5,000, or 5 years at £1,000 a year) and deduct the net cost applicable to the qualifying use (£6,400). This gives a balancing allowance of £1,400 (ie £6,400 -£5,000). |
24A.3.6.4 The Purchaser |
The purchaser, P, is entitled to an allowance provided the building is used by P for a qualifying purpose. P is entitled to a writing down allowance based on the residue of expenditure, ie the remaining unrelieved expenditure of P’s vendor, plus any balancing charge (or minus a balancing allowance).421 This sum is spread evenly over the remaining 25-year period, and is in no way tied to a 4% figure. Therefore, if, in Example 1 above, the building had been sold for £40,000, V would have been given a balancing allowance of £8,000. P could then have spread the £40,000 over the 12 years of the 25 years remaining. This means that P’s £40,000 would be written off at the rate of £3,333 p.a., as opposed to V’s £4,000. If the building had been sold for £100,000, V would have had a balancing charge of £52,000 and P would have written off the £100,000 over 12 years making £8,333 a year. It also follows that if the sale took place after 25 years had expired, V would get no balancing |