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