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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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IBA: enterprise zones: realisation of capital value: arrangements for future sale of relevant 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.

The 7-year time limit at (c) of CA37720 does not apply where both of the following conditions are satisfied.

A. The arrangements under which the person entitled to the relevant interest acquired it include provision in respect of:

  • the subsequent sale of the relevant interest, or
  • the subsequent grant out of the relevant interest of an interest in land, or
  • any other event on which capital value attributable to the subordinate interest would be, or be treated as, paid.


B. Either the provision referred to in (A) requires such a sale, grant or other event to occur or such a sale, grant or other event is substantially more likely to occur than if the provision had not been made.

Example Matthews trades as a builder. He builds an office block in an enterprise zone during the life of the zone. He has trouble selling it but in 2001 he manages to sell it to Hillman for £1.2 million. The sale arrangements include this guarantee. If Hillman has not been able to find anyone to take a long lease of the office block at a premium equal to at least one half of his purchase price (i.e. £600,000) after 8 years then Parsons will take a long lease of the block for a premium of that amount. Hillman claims 100% enterprise zone allowance.

Hillman tries to find someone to take a long lease of the office block but he is not successful. After 8 years he uses the guarantee to require Parsons to take a long lease of the office block for a premium of £600,000. The premium Parsons pays is capital value. The realisation of capital value legislation applies even though the premium was paid more than 7 years after Hillman bought the building. It applies because Parson paid his premium under the arrangements under which Hillman bought the building. Hillman’s residue of qualifying expenditure is nil because he has claimed an enterprise zone allowance of !00%. He has a balancing charge of £600,000.