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HMRC internal manual

Capital Allowances Manual

IBA: outline: background

IBA was introduced by Income Tax Act 1945 to encourage post-war reconstruction by productive industry. Broadly, allowances were then available on the capital cost of constructing buildings or structures (or sometimes on buying them unused) provided that the building or structure was used for manufacturing or processing. There could then be, and still can be, many interests in land (and hence in the building or structure). In order to keep the relief simple allowances were available only to a person holding “the relevant interest” in the building. It replaced the old mills and factories allowance.

The broad framework from 1945 still applied up to April 2011. Originally IBA was aimed at productive industry but its scope is now much wider and includes buildings and structures like tunnels, bridges, roads used for highway concessions, qualifying hotels and commercial buildings in enterprise zones.

Budget 2007 announced a business tax reform package including the gradual withdrawal of IBAs and ABAs over four years. Legislation was introduced in FA08 to give effect to these changes. The phased withdrawal of IBA writing down allowances had effect for chargeable periods ending on or after 1 April 2008 for businesses within the charge to CT and 6 April 2008 for businesses within the charge to IT. There are no IBA writing down allowances for the Financial year beginning on 1 April 2011 and subsequent years.