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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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ABA: qualifying expenditure

Agricultural buildings allowance was phased out by FA2008. A person gets

  • 75% of the allowance for the financial year beginning 1 April 2008 / tax year 2008/09
  • 50% of the allowance for the financial year beginning 1 April 2009 / tax year 2009/10
  • 25% of the allowance for the financial year beginning 1 April 2010 / tax year 2010/11

There is no ABA for the financial year beginning 1 April 2011 / tax year 2011/12 onwards.CAA01/S369 & S371

Expenditure is qualifying expenditure and so qualifies for ABA if it satisfies these three conditions:

  1. the expenditure is capital expenditure incurred on constructing agricultural buildings;
  2. the expenditure is incurred for the purposes of husbandry on agricultural land; and
  3. the person who incurs the expenditure has an interest in that agricultural land which is capable of being the relevant interest CA41000.

Since land outside the UK is never agricultural land for ABA purposes, buildings outside the UK cannot qualify for ABA. This means that a person who owns a farm in France, for example, and constructs a barn cannot claim ABA on it. However, if the profits of the farm in France are assessable as profits of a trade the farm will satisfy the IBA definition of foreign plantation CA32226. This means that agricultural buildings constructed by a person who owns a farm abroad whose profits are assessable as profits of a trade can qualify for IBA.

The agricultural land in (b) is called the related agricultural land.

Example Stephen owns a dairy farm and builds a new milking parlour. The land occupied by the dairy farm is the related agricultural land for the milking parlour.

The person who incurs expenditure on constructing an agricultural building may have different interests in different parts of the related agricultural land. In a case like that apportion the expenditure on constructing the agricultural building on a just and reasonable basis and look at each part separately.

Example Graham is a farmer. He owns 75% of the land occupied by his farm and leases the other 25%. He incurs capital expenditure on drainage works for the whole farm. The expenditure is apportioned between the land he owns and the land he rents. ABA is calculated on the 75% relating to the land he owns and the 25% relating to the land he rents separately.

Do not give ABA on more than one-third of expenditure incurred on constructing a farmhouse. This is to allow for the fact that the farmhouse is also residential accommodation. If the farmhouse is more luxurious than the average farmhouse give ABA on a reasonable portion (but never more than one-third) of the expenditure.

Example Graham builds a farmhouse which includes a private cinema and a Jacuzzi. It is agreed that only 10% of the farmhouse is used for farm business and so he gets ABA on 10% of the cost.

Sometimes the one-third restriction acts against the farmer. For example, if the farmhouse is used 50% for farm business it is still only one-third of its construction expenditure that qualifies for ABA.

A farmer may construct an agricultural building which is not a farmhouse and which is to be used partly for purposes other than the purposes of husbandry. In such a case you should make a just and reasonable apportionment of the expenditure and give ABA on the part that relates to use for the purposes of husbandry.

Example Neil is a farmer and a rock musician. He builds a garage in which he keeps his farm vehicles and the band’s tour bus. No part of the garage is used exclusively for either the farm vehicles or the bus. The expenditure on constructing the garage is apportioned and ABA is given on the part representing the use for storing the farm vehicles.

Expenditure on land, or on rights in or over land, does not qualify for ABA.

Capital expenditure on constructing an agricultural building includes:

  • repairs expenditure which is not allowable as a revenue deduction
  • capital expenditure on improvements or reconstruction
  • demolition costs where the demolition is a preliminary to replacing a building unless the building demolished has been an industrial building and the demolition costs have been added to the residue of expenditure for IBA purposes; and
  • architect’s fees.

Where stone or gravel from a quarry or gravel pit on an agricultural estate is used in the construction of an agricultural building, give ABA on the proportion of the working costs of the quarry or pit attributable to the stone or gravel used in the construction of the building. Do not do this if those costs are allowable as a Sch A deduction. If you treat some of the costs as ABA qualifying expenditure make a corresponding credit in computing the profits of the quarry or gravel pit.