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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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PMA: Anti-avoidance: Seller's disposal value and buyer's qualifying expenditure restricted

CAA01/S222 - S224 & S226

When you have a sale and finance leaseback CA28500 the seller’s disposal value is restricted. It is the lowest of:

  • the true disposal value,
  • market value,
  • the notional written down value of the seller’s capital expenditure,
  • the notional written down value of the capital expenditure incurred by anyone connected with the seller.

 

The seller’s disposal value is not restricted if the buyer is not entitled to any allowances because the buyer is not bearing the non-compliance risk CA28600.

The buyer cannot claim FYA.

If the seller has a disposal value that is restricted as above, the buyer’s qualifying expenditure is restricted to that restricted disposal value.

If the seller does not have a disposal value the buyer’s qualifying expenditure is the lowest of:

  • market value,
  • the notional written down value of the seller’s capital expenditure if there is any,
  • the notional written down value of any capital expenditure incurred by anyone connected with the seller.

 

This is how you calculate the notional written down value of the capital expenditure on an asset. Start with the qualifying expenditure. Then deduct all the WDAs that could have been made. If the asset is a long life asset CA23700 use the long life asset rate when you do the calculation. The answer is the notional written down value. Where FYA is available for the chargeable period in which the asset was acquired it should also be deducted in calculating the notional written down value.

Example As in the example at CA28500 Robert sells his yacht to Jimmy and leases it back under a finance lease. The yacht cost Robert £100,000 during the year ended 31 December 2000. Robert sells it to Jimmy on 1 April 2002 for £100,000. It’s market value then is £90,000. This is the notional written down value.

Cost £100,000  
     
FYA for year ended 31/12/2000 £40,000  
Value carried forward £60,000  
WDA year ended 31/12/2001 £15,000  
Value brought forward at 1/1/2002 £45,000  

The amount that Jimmy can treat as qualifying expenditure is £45,000.

The amount on which any future owner can claim capital allowances is also restricted. The maximum allowable amount is the seller’s disposal value when the asset was sold and leased back under the finance lease plus any installation costs incurred by the purchaser that are allowable under CAA01/S25 CA21190.

This rule limits the allowances that are given overall to the original cost to the seller. It also prevents any allowances to which the seller would have been entitled before the sale from being transferred to the lessor. The limit on the allowances that can be transferred to the lessor does not depend on whether allowances could or have been claimedby the seller. It is calculated by deeming the seller to be entitled to capital allowances on the expenditure that the seller incurred.