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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
Updated
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IBA: enterprise zones: realisation of capital value: uncommercial arrangements

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.

Sometimes the capital value is not the amount paid in respect of the subordinate interest. It is the amount that would have been paid if the transaction had been an arm’s length transaction. This happens where:

  • there is no premium in respect of the grant of the subordinate interest, or
  • the premium is less than the premium which would have been paid in an arms length transaction, or
  • no commercial rent is payable in respect of the subordinate interest.

 

Where:

  1. any rent payable in respect of the subordinate interest is assigned
  2. the subordinate interest is varied, or
  3. any of the terms on which the subordinate interest was granted are waived

 

and no value is given or the value given is less than the arm’s length amount the capital value is the amount that would have been given if the transaction had been at arms length rather than the amount actually given.

Treat cases where the value given in lieu of any rent payable by the person entitled to the subordinate interest is less than the amount that would have been given if the transaction had been at arms length in the same way. The capital value is the amount that would have been given if the transaction had been at arms length rather than the amount actually given.