IBA: enterprise zones: realisation of capital value: attributable to the subordinate interest
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.
Capital value is attributable to the subordinate interest if it is paid:
- in connection with the grant of the subordinate interest
- in lieu of any rent payable by the person entitled to the subordinate interest
- in consideration of the assignment of any rent payable by the person entitled to the subordinate interest
- in consideration of the surrender of the subordinate interest; or
- in consideration of the variation or waiver of any terms on which the subordinate interest was granted.
Example Graham buys the relevant interest in an unused office block in an enterprise zone for £1 million in 2005 and claims 100% initial allowance. If he grants a lease to Andrew for a premium of £400,000 two years later the £400,000 is capital value attributable to the lease granted to Andrew.
The residue of qualifying expenditure of expenditure when Graham grants the lease to Andrew is nil because Graham has claimed 100% initial allowance. This means that there is a balancing charge of £400,000. The limit on future balancing charges then becomes £600,000 (= initial allowance of £1 million less balancing charge assessed £400,000).