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HMRC internal manual

Capital Allowances Manual

From
HM Revenue & Customs
Updated
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FCA: Balancing adjustments

CAA01/S393M - S393P and CAA01/S573

There is a balancing adjustment if there is a balancing event within 7 years of thetime when the flat was first suitable for letting. A balancing adjustment is either abalancing allowance or balancing charge. If there is more than one balancing event thereis only a balancing adjustment on the first one.

These are the balancing events and the proceeds to be brought into account.

Balancing Event Proceeds from Event
   
Transfer of relevant interest Net proceeds of sale if the relevant interest is sold
Market value if the transfer is other than by way of sale  
Grant of a long lease out the relevant interest for a capital sum The capital sum paid for the grant or, if less than the commercial premium, the commercial premium
The coming to an end of a lease where a person entitled to the lease and a person entitled to any superior interest are connected persons The market value of the relevant interest at the time of the event
Death of the person who incurred the qualifying expenditure The residue of qualifying expenditure immediately before death
Demolition or destruction of the flat The net amount received plus any insurance or compensation receipts
Flat ceases to be a qualifying flat, for example because it is let to a person connected with the person who incurred the qualifying expenditure The market value of the relevant interest at the time of the event

There is a balancing allowance if:

  • there are no proceeds from the balancing event, or
  • the proceeds are less than the residue of qualifying expenditure immediately before the event.

The balancing allowance is the difference between the proceeds (if any) and the residueof unrelieved qualifying expenditure.

There is a balancing charge where the proceeds are greater than theresidue of qualifying expenditure immediately before the event. The amount of thebalancing charge is:

  • the difference between the proceeds and the residue of qualifying expenditure, or
  • the proceeds if the residue is nil.

A balancing charge made on a person cannot be more than the allowances (initial andwriting down) made to the person in respect of the flat.