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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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IBA: balancing adjustments: demolition costs

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 those 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.CAA01/S340

This is how you treat demolition costs when a building is demolished and the costs are borne by the person on whom the balancing adjustment will be made. The net demolition cost, that is the demolition costs less anything received for the remains of the building, are added to the residue of qualifying expenditure immediately before the demolition. This means that they are taken into account in calculating the balancing adjustment and so relief is given for them.

Where relief is given this way for demolition costs, they cannot be treated as expenditure on a property that replaces the demolished property.