Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
129

360D
Meaning of “qualifying business premises”
(1)
In this Part “qualifying business premises” means any premises in
respect of which the following requirements are met—
(a)
the premises must be a qualifying building,
(b)
the premises must be used, or available and suitable for
5
letting for use,—
(i)
for the purposes of a trade, profession or vocation, or
(ii)
as an office or offices (whether or not for the purposes
of a trade, profession or vocation),
(c)
the premises must not be used, or available for use as, or as
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part of, a dwelling.
(2)
In this section “premises” means any building or structure or part of
a building or structure.
(3)
For the purposes of this Part, if premises are qualifying business
premises immediately before a period when they are temporarily
15
unsuitable for use for the purposes mentioned in subsection (1)(b),
they are to be treated as being qualifying business premises during
that period.
(4)
The Treasury may by regulations make further provision as to the
circumstances in which premises are, or are not, qualifying business
20
premises.
CHAPTER 4
THE RELEVANT INTEREST IN THE QUALIFYING BUILDING
360E
General rule as to what is the relevant interest
(1)
The relevant interest in a qualifying building in relation to any
25
qualifying expenditure is the interest in the qualifying building to
which the person who incurred the qualifying expenditure was
entitled when it was incurred.
(2)
Subsection (1) is subject to the following provisions of this Chapter
and to section 360Z3 (provisions applying on termination of lease).
30
(3)
If—
(a)
the person who incurred the qualifying expenditure was
entitled to more than one interest in the qualifying building
when the expenditure was incurred, and
(b)
one of those interests was reversionary on all the others,
35

the reversionary interest is the relevant interest in the qualifying
building.
(4)
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.
40
(5)
If—
(a)
the relevant interest is a leasehold interest, and
(b)
that interest is extinguished on the person entitled to it
acquiring the interest which is reversionary on it,

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
130


the interest into which the leasehold interest merges becomes the
relevant interest when the leasehold interest is extinguished.
360F
Interest acquired on completion of conversion

For the purposes of determining the relevant interest in a qualifying
building, a person who—
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(a)
incurs expenditure on the conversion of a qualifying building
into qualifying business premises, and
(b)
is entitled to an interest in the qualifying building on or as a
result of the completion of the conversion,

is treated as having had that interest when the expenditure was
10
incurred.
CHAPTER 5
INITIAL ALLOWANCES
360G
Initial allowances
(1)
A person who has incurred qualifying expenditure in respect of any
15
qualifying building is entitled to an initial allowance in respect of the
expenditure.
(2)
The amount of the initial allowance is 100% of the qualifying
expenditure.
(3)
A person claiming an initial allowance under this section may
20
require the allowance to be reduced to a specified amount.
(4)
The initial allowance is made for the chargeable period in which the
qualifying expenditure is incurred.
360H
Premises not qualifying business premises or relevant interest sold
before premises first used or let
25
(1)
No initial allowance is to be made under section 360G if, at the
relevant time, the qualifying building does not constitute qualifying
business premises.
(2)
An initial allowance which has been made in respect of a qualifying
building which is to be qualifying business premises is to be
30
withdrawn if—
(a)
the qualifying building does not constitute qualifying
business premises at the relevant time, or
(b)
the person to whom the allowance was made has sold the
relevant interest in the qualifying building before the
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relevant time.
(3)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to this section.
(4)
In this section “the relevant time” means the time when the premises
are first used by the person with the relevant interest or, if they are
40
not so used, the time when they are first suitable for letting for either
of the purposes mentioned in section 360D(1)(b).

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
131

CHAPTER 6
WRITING-DOWN ALLOWANCES
360I
Entitlement to writing-down allowances
(1)
A person is entitled to a writing-down allowance for a chargeable
period if he has incurred qualifying expenditure in respect of a
5
qualifying building and, at the end of the chargeable period—
(a)
the person is entitled to the relevant interest in the qualifying
building,
(b)
the person has not granted a long lease of the qualifying
building out of the relevant interest in consideration of the
10
payment of a capital sum, and
(c)
the qualifying building constitutes qualifying business
premises.
(2)
In subsection (1)(b) “long lease” means a lease the duration of which
exceeds 50 years.
15
(3)
Whether the duration of a lease exceeds 50 years is to be
determined—
(a)
in accordance with section 303 of ITTOIA 2005, and
(b)
without regard to section 360Z3(3) of this Act (new lease
granted as a result of the exercise of an option treated as
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continuation of old lease).
(4)
A person claiming a writing-down allowance may require the
allowance to be reduced to a specified amount.
360J
Amount of allowance
(1)
The writing-down allowance for a chargeable period is 25% of the
25
qualifying expenditure.
(2)
The allowance is proportionately increased or reduced if the
chargeable period is more or less than a year.
(3)
The amount of the writing-down allowance for a chargeable period
is limited to the residue of qualifying expenditure.
30
(4)
For this purpose the residue is ascertained immediately before
writing off the writing-down allowance at the end of the chargeable
period.
360K
Meaning of “the residue of qualifying expenditure”
The residue of qualifying expenditure is the qualifying expenditure
35
that has not yet been written off in accordance with Chapter 9.
CHAPTER 7
GRANTS IN RESPECT OF QUALIFYING EXPENDITURE
360L
Grants affecting entitlement to allowances
(1)
No initial allowance or writing-down allowance under this Part is to
40
be made in respect of expenditure to the extent that it is taken into

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
132

account for the purposes of a relevant grant or relevant payment
made towards that expenditure.
(2)
A grant or payment is relevant if it is—
(a)
a notified State aid other than an allowance under this Part, or
(b)
a grant or subsidy, other than a notified State aid, which the
5
Treasury by order declares to be relevant for the purposes of
the withholding of initial allowances or writing-down
allowances.
(3)
For the purposes of subsection (2), “notified State aid” means a State
aid notified to and approved by the European Commission.
10
(4)
If a relevant grant or relevant payment towards the expenditure is
made after the making of an initial allowance or a writing-down
allowance, the allowance is to be withdrawn to that extent.
(5)
If the amount of the relevant grant or relevant payment is repaid by
the grantee to the grantor, in whole or in part, the grant or payment
15
is treated, to that extent, as never having been made.
(6)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (4) or (5).
(7)
Any such assessment or adjustment is not out of time if it is made
within 3 years of the end of the chargeable period in which the grant,
20
payment or adjustment was made.
CHAPTER 8
BALANCING ADJUSTMENTS
360M
When balancing adjustments are made
(1)
A balancing adjustment is made if—
25
(a)
qualifying expenditure has been incurred in respect of a
qualifying building, and
(b)
a balancing event occurs.
(2)
A balancing adjustment is either a balancing allowance or a
balancing charge and is made for the chargeable period in which the
30
balancing event occurs.
(3)
A balancing allowance or balancing charge is made to or on the
person who incurred the qualifying expenditure.
(4)
No balancing adjustment is made if the balancing event occurs more
than 7 years after the time when the premises were first used, or
35
suitable for letting, for either of the purposes mentioned in section
360D(1)(b).
(5)
If more than one balancing event within section 360N occurs, a
balancing adjustment is made only on the first of them.
360N
Balancing events
40
(1)
The following are balancing events for the purposes of this Part—
(a)
the relevant interest in the qualifying building is sold;

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
133

(b)
a long lease of the qualifying building is granted out of the
relevant interest in consideration of the payment of a capital
sum;
(c)
if the relevant interest is a lease, the lease ends otherwise than
on the person entitled to it acquiring the interest reversionary
5
on it;
(d)
the person who incurred the qualifying expenditure dies;
(e)
the qualifying building is demolished or destroyed;
(f)
the qualifying building ceases to be qualifying business
premises (without being demolished or destroyed).
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(2)
Section 360I(2) and (3) (meaning of “long lease”) applies for the
purposes of subsection (1)(b).
360O
Proceeds from balancing events
(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
15
shown in the Table—

TABLE: BALANCING EVENTS AND PROCEEDS

1 Balancing Event
2 Proceeds from event

1 The sale of the relevant interest.
The net proceeds of the sale.

20

2 The grant of a long lease out of
If the capital sum paid in

the relevant interest.
consideration of the grant is less

than the commercial premium, the

commercial premium.

In any other case, the capital sum

25

paid in consideration of the grant.

3 The coming to an end of a lease,
The market value of the relevant

where a person entitled to the
interest in the qualifying building

lease and a person entitled to any
at the time of the event.

superior interest are connected

30

persons.

4 The death of the person who
The residue of qualifying

incurred the qualifying
expenditure immediately before

expenditure.
the death.

5 The demolition or destruction of
The net amount received for the

35

the qualifying building.
remains of the qualifying

building, together with—

(a)
any insurance money

received in respect of the

demolition or destruction,

40

and

(b)
any other compensation of

any description so

received, so far as it

consists of capital sums.

45

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
134

1 Balancing Event
2 Proceeds from event

6 The qualifying building ceases to
The market value of the relevant

be qualifying business premises.
interest in the qualifying building

at the time of the event.

(2)
The amounts referred to in column 2 of the Table are those received
5
or receivable by the person who incurred the qualifying expenditure.
(3)
In Item 2 of the Table “the commercial premium” means the
premium that would have been given if the transaction had been at
arm’s length.
360P
Calculation of balancing adjustments
10
(1)
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 immediately before the
event.
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(2)
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).
(3)
A balancing charge is made if the proceeds from the balancing event
are more than the residue, if any, of qualifying expenditure
20
immediately before the event.
(4)
The amount of the balancing charge is the amount of—
(a)
the difference, or
(b)
the proceeds (if the residue is nil).
(5)
The amount of a balancing charge made on a person must not exceed
25
the total amount of—
(a)
any initial allowances made to the person in respect of the
expenditure, and
(b)
any writing-down allowances made to the person in respect
of the expenditure for chargeable periods ending on or before
30
the date of the balancing event giving rise to the balancing
adjustment.
CHAPTER 9
WRITING OFF QUALIFYING EXPENDITURE
360Q
Introduction
35
For the purposes of this Part qualifying expenditure is written off to
the extent and at the times specified in this Chapter.
360R
Writing off initial allowances and writing-down allowances
(1)
If an initial allowance is made in respect of the qualifying
expenditure, the amount of the allowance is written off at the time
40
when the qualifying business premises are first used, or suitable for

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
135

letting for use, for either of the purposes mentioned in section
360D(1)(b).
(2)
If a writing-down allowance is made in respect of the qualifying
expenditure, the amount of the allowance is written off at the end of
the chargeable period for which the allowance is made.
5
(3)
If a balancing event occurs at the end of the chargeable period
referred to in subsection (2), the amount written off under that
subsection 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.
10
360S
Treatment of demolition costs
(1)
This section applies if—
(a)
a qualifying building is demolished, and
(b)
the person who incurred the qualifying expenditure incurs
the cost of the demolition.
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(2)
The net cost of the demolition is added to the residue of qualifying
expenditure 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 qualifying building.
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(4)
If this section applies, neither the cost of the demolition nor the net
cost of the demolition is treated for the purposes of any Part of this
Act as expenditure on any other property replacing the qualifying
building demolished.
CHAPTER 10
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ADDITIONAL VAT LIABILITIES AND REBATES
360T
Introduction
For the purposes of this Chapter—
(a)
“additional VAT liability” and “additional VAT rebate” have
the meanings given by section 547,
30
(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, and the time when, an
35
additional VAT liability or an additional VAT rebate accrues
are given by section 549.
360U
Additional VAT liabilities and initial allowances
(1)
This section applies if—
(a)
a person was entitled to an initial allowance under this Part
40
in respect of qualifying expenditure on a qualifying building,
(b)
that person incurs an additional VAT liability in respect of
that expenditure, and