Under Section 55 of the Capital Allowances Act 2001, persons might be entitled to balancing allowances and liable for balancing charges when a long-life asset is sold. These are computed separately for each pool of qualifying expenditure. If the qualifying expenditure is less than the amount received on disposal of the asset, the person is entitled to a writing-down or balancing allowance.
On the other hand, if the amount received on disposal is more than the qualifying expenditure, the person is liable for a balancing charge to the extent of the excess of disposal receipts over qualifying expenditure. In effect, the person will have to pay tax avoided earlier through capital allowance claims.
There rules and provisos that increase or reduce the claims and charges.
When the asset disposed off is an industrial or agricultural building or hotel, the buyer and seller can negotiate the value of the plant and machinery that forms part of the building. If the value is agreed at a low amount, the seller will gain in tax terms. On the other hand, if the value is agreed at a high amount, the buyer can claim capital allowances on that value.
It is standard practice to look at the capital allowances claimed on such plant and machinery when property is disposed off. The seller declares the value of the Capital Allowances claimed, in what form they were claimed, to what the allowances relate and what the written down value of the allowances is. Based on these, the seller and buyer negotiate the value.
The seller might be able to get a higher price for the property by allowing the buyer the opportunity to claim higher capital allowances. Whatever is agreed upon can be included in an Election Notice under Section 198 of the Act. We will look at this section in a separate article.
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