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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: Capital allowances: industrial buildings allowances

Disposal proceeds in respect of industrial buildings give rise to a balancing charge which is the lesser of the proceeds or the allowances given. CTA10/S919 provides that a major lump sum should be treated in the same way. Further guidance was offered in the article on Schedule 12 (now Part 21 of CTA 2010) published in the April 1997 issue of Tax Bulletin:

`Paragraph 11(8) of Schedule 12 deals with capital allowances apart from those on machinery and plant and some others mentioned in paragraph 11(3) (CTA 10/S918). Paragraph 11(8) is primarily relevant for industrial buildings allowance and says that the smaller of any major lump sum or the capital allowances given is treated as a balancing charge.

Where a ‘major lump sum’ falls due more than twenty-five years after an industrial building was first used, we accept that the rule in Section 4(2) of the Capital Allowances Act 1990 may be regarded as taking priority and no balancing charge need be recognised.

Where exceptionally a major lump sum is less than the lessor’s outlay qualifying for capital allowances, it is possible that the balancing charge together with the aggregate rental income computed under Schedule 12 could in some circumstances be greater than the lessor’s commercial profit from the transaction (ignoring the lessor’s own costs). In these circumstances the balancing charge will be reduced by the excess. This is likely to be a rare case.`

The same principles will be applied to the equivalent rules in CAA 2001.