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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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IBA: enterprise zones: realisation of capital value: background

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. This phasing out does not apply to EZ WDAs. They continue in full until the cut-off date. There are no IBA writing down allowances for the financial year beginning on 1 April 2011 and subsequent years.

CAA01/S327 - S331

Where a person who holds the relevant interest in an industrial building sells the interest within the normal 25-year period, there is a balancing adjustment on the person. Prior to January 1994, the capital value of the relevant interest could be realised without incurring a balancing adjustment by disposing of the commercial substance of the interest while retaining the interest itself. The commonest methods were:

  • to grant a lease of more than 50 years duration out of the relevant interest for a premium and a ground rent. (The lessor and lessee can however elect jointly for the grant of the lease to be treated as the sale of the relevant interest; if so there is a balancing adjustment on the lessor and the relevant interest, and hence the entitlement to IBA, is transferred to the lessee CA33100).
  • where there is an existing lease out of the relevant interest of more than 50 years duration, to accept a capital sum from the lessee in return for the reduction of future rentals to a ground rent.


Following the case of Regina v CIR ex parte Matrix-Securities Ltd. 66TC587 the Government decided to close this loophole for buildings in enterprise zones. It remains open for other industrial buildings. Under the rules introduced in 1994, a balancing charge arises where a person holding the relevant interest in a building that qualifies for enterprise zone allowances receives capital value attributable to a subordinate interest in the building within 7 years (or in certain circumstances at any time in the normal 25 year period) of acquiring the relevant interest.