Capital allowances—interaction with CGT, VAT and stamp taxes
Produced in partnership with Martin Wilson
Capital allowances—interaction with CGT, VAT and stamp taxes

The following Tax practice note Produced in partnership with Martin Wilson provides comprehensive and up to date legal information covering:

  • Capital allowances—interaction with CGT, VAT and stamp taxes
  • CGT—plant and machinery allowances have no effect on computing a gain
  • CGT—effect of structures and buildings allowances on computation of a gain
  • CGT—wasting assets
  • Wasting assets that are chattels
  • Wasting assets qualifying for allowances
  • CGT—capital losses restricted by reference to plant and machinery allowances
  • Example
  • CGT—time of disposal
  • VAT—are capital allowances due on the VAT inclusive or VAT exclusive amount?
  • More...

This Practice Note sets out how the capital allowances rules interact with the rules relating to:

  1. capital gains tax, including corporation tax on chargeable gains (CGT)

  2. value added tax (VAT), and

  3. stamp taxes, namely:

    1. stamp duty land tax (SDLT) in England and Northern Ireland

    2. land and buildings transaction tax (LBTT) in Scotland, and

    3. land transaction tax (LTT) in Wales

It is a common misconception that claiming capital allowances for plant and machinery will reduce the CGT base cost of an asset and hence increase any gain. This is not true—claiming plant and machinery allowances does not reduce a taxpayer’s CGT base cost in a capital asset. However, a claim for these allowances may restrict the extent to which any capital losses are allowable upon a subsequent disposal.

The impact of VAT on capital allowances is sometimes overlooked by taxpayers or their advisers. The amount of VAT may be large (currently 20% of the net asset cost) and there is also the risk of penalties and interest should the rules be misapplied.

The VAT element of the purchase price of a capital asset will only qualify for capital allowances to the extent that such input tax is irrecoverable. Specific rules apply in the case of assets subject to the capital goods scheme (namely, computers and computer equipment, land and buildings, aircraft, ships and boats), which may require the

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