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HMRC internal manual

Capital Allowances Manual

PMA: WDA & balancing adjustments: Disposal values

CAA01/S61 (2) - (5), S62 & S63; FA02/PARA9 (3)(c) & FA02/SCH18

These are the disposal values for the various disposal events in CA23240.

Disposal event Disposal value
   
Sale of the asset Net proceeds of sale (see CA11540) plus any insurance money received as a result of an event affecting the sale price and any other capital compensation received
Sale of the asset at less than market value Market value unless there is a charge under ITEPA on the buyer or the buyer can claim PMAs or RDAs on the asset and the buyer is not a dual resident investing company connected with the seller
Demolition or destruction of the asset Net amount received for the remains of the asset together with any insurance money received for the demolition or destruction and any other capital compensation
Permanent loss of the asset not by demolition or destruction Any insurance money received for the loss and any other capital compensation
Abandonment of an asset used for mineral exploration and access Any insurance money received for the abandonment and any other capital compensation
Permanent discontinuance of the qualifying activity before an event listed above The disposal value for the event
Commencement of the term of a long funding finance lease CA23850 of an asset The amount which would be recognised as the lessor’s net investment in the lease if accounts were prepared in accordance with generally accepted accounting practice on the date on which the lessor’s net investment in the lease is first recognised in its books or other financial records
Commencement of the term of a long funding operating lease of an asset  
 CA23850 For leases commencing before 13 November 2008

The amount which would be recognised as the lessor’s net investment in the lease if accounts were prepared in accordance with generally accepted accounting practice on the date on which the lessor’s net investment in the lease is first recognised in its books or other financial records

For leases commencing on or after 13 November 2008

The greater of:

(a) the market value of the plant or machinery at the commencement of the term of the lease, and

(b) the qualifying lease payments (as defined at s.61(5A) CAA 2001).    
  Any other event Market value

Normally the disposal value of an asset is limited to the qualifying expenditure incurred on its provision by the person bringing the disposal value to account. There is one exception to this. If the person bringing the disposal value to account acquired it from a connected person or in a series of transactions between connected persons the limit on that person’s disposal value is the greatest qualifying expenditure incurred by anyone in the chain.

Disposal value is nil in these two cases:

  • The asset is gifted to a person who is chargeable under ITEPA on the gift.
  • The asset is gifted to a charity, a heritage body or museum listed in s468 CTA 2010 (formerly ICTA88/S507 (1)) or an educational establishment designated in ITTOIA/S110 or s106 CTA 2009 (formerly ICTA88/S84), or a club registered as a community amateur sports club. The requirements for a club to be registered as a community amateur sports club are in Chapter 9 of Part 13 CTA 2010 (formerly FA02/SCH18).

 

You should remember that the disposal value is nil when the gift is chargeable on the employee as a payment or other benefit in connection with termination of employment under ITEPA 2003 (formerlyICTA88/S148) whether or not tax is actually charged. The disposal value is nil even if ITEPA (Former ICTA88/S188) prevents tax from being charged because the transfer price of the gift is less than £30,000.

You should also remember that there is a nil disposal value only where an asset is gifted to an employee. It does not apply to any other kind of transfer.

If an employer transfers an asset to an employee and claims that the disposal value is nil, you should check that the transfer is really a gift. A gift is a transfer from one person to another for no consideration (see CG12920 and CG66451). This means that a transfer that is a gift cannot have been made wholly and exclusively for the purposes of the trade and CTA 2009 Ss 53,54,59,68,103 and 231 (formerly ICTA88/S74 (1) (a)) will prevent a deduction (see BIM47110).

An employer cannot be entitled both to a revenue deduction and to have a disposal value of nil on the transfer of an asset to an employee. If the employer has claimed a revenue deduction, the transfer must have passed the wholly and exclusively test. If it has passed the wholly and exclusively test, it cannot have been for no consideration and so it cannot have been a gift. In that case the employer is required to bring a disposal value to account in the capital allowance computation.