Capital expenditure with a long-term benefit to the future business (eg new buildings, equipment).

Capital, in legal and transactional practice, generally refers to the financial resources or assets contributed to, or retained within, a business or other entity to fund its operations and growth. It commonly encompasses share capital, loan capital, and other equity or debt funding, and may extend to assets such as property or equipment used in the business.In company law across England and Wales, Scotland, Northern Ireland and Ireland, “share capital” and “issued share capital” are defined and regulated concepts (for example, under the Companies Act 2006 in the UK and the Companies Act 2014 in Ireland), governing matters such as maintenance of capital, distributions, reduction of capital and rights attaching to shares.In trust and probate practice, capital is distinguished from income, affecting beneficiaries’ respective entitlements and trustees’ investment and distribution decisions. In tax law, capital is contrasted with revenue for purposes including capital gains tax and capital allowances, with detailed statutory and case law rules.Usage is broadly consistent across the UK and Ireland, although specific statutory definitions and technical rules vary between jurisdictions and practice areas.

Archived: This timeline has been archived. It outlines the key developments relating to EU CRD IV and the EU CRR. The EU’s package of prudential measures, the Capital Requirements Directive IV (Directive 2013/36/EU) (EU CRD IV) and the Capital Requirements Regulation (EU) 575/2013 (EU CRR) (also known collectively as EU CRD IV), implemented the global capital adequacy framework, Basel III, in the EU. Most of its provisions became effective on 1 January 2014, except for certain provisions specified in Article 521 of the EU CRR. As EU CRD IV combined a directive and a regulation, elements of the requirements were directly applicable in EU Member States and others required national implementation. For developments from January 2024 onwards, see EU Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR)—timeline if they relate to EU CRD IV/CRR, or UK prudential regime for banks and designated investment firms—timeline if they relate to the UK prudential regime for banks and systemically important investment firms, For further guidance on EU CRD IV/CRR, see Practice

Capital adequacy ratios are used to determine a credit institution's capacity to meet liabilities and other risks. A credit institution's capital acts as a cushion for potential losses and protects depositors or other lenders.

An allowance made for certain types of capital expenditure to be used as reductions against a company's corporation or income tax liability on profits.

Where a transfer of assets (as opposed to a transfer of shares) results in the transfer of a trade or other qualifying activity, the capital allowances rules for plant and machinery can lead to balancing charges (in effect, negative capital allowances, commonly referred to as a ‘claw-back’). A balancing charge increases taxable profits, thereby giving rise to an additional tax liability. The legislation provides mechanisms for avoiding this outcome in certain commercial situations where specified conditions are met. This Practice Note looks at the capital allowances rules for plant and machinery applying to: • the transfer of a trade between two UK taxpaying companies where, broadly, there is no change in the ownership of the trade • successions without a sale, including on incorporation • the transfer of a trade between connected persons, and • a change of trade, or the conversion of a trading company into an investment company, or vice versa For a general explanation of how capital allowances for plant and machinery are calculated, including the meanings

Provisions exist to ensure, generally, that assets may not be transferred between connected persons in such a way as to accelerate capital allowances by means of the annual investment allowance or first-year allowances, or in such a way as to artificially inflate the amount on which allowances can be claimed. This Practice Note describes how connected persons are defined by the capital allowances rules and how those rules apply when assets are transferred between connected persons. For information on an election for alternative treatment that may be made on a transfer of a trade between connected persons, see Practice Note: Capital allowances and company reconstructions—Transfer of a trade between connected persons. For a general explanation of how capital allowances for plant and machinery are calculated, including the meanings of the terms annual investment allowance, first-year allowances, disposal value and writing down allowance, see Practice Notes: How plant and machinery allowances are claimed—income tax and How plant and machinery allowances are claimed—corporation tax. For an explanation of the calculation of allowances for structures

For both plant and machinery allowances and structures and buildings allowances (SBAs), anti-avoidance rules exist to prevent persons from obtaining a tax advantage by entering into tax-motivated arrangements. For SBAs, these operate by making such adjustments as are just and reasonable, see Practice Note: Structures and buildings allowances. The anti-avoidance rules for plant and machinery set out in Chapters 16A and 17, Part 2 of the Capital Allowances Act 2001 (CAA 2001) are more extensive, and the remainder of this Practice Note deals with key provisions within those. There are both general and specific anti-avoidance provisions applying to capital allowances for plant and machinery. General provisions exist to ensure assets may not be transferred, for example between connected persons or in any case where the sole or main purpose is not a commercial one, in such a way as to obtain an advantage in relation to capital allowances. There is also anti-avoidance legislation that affects specific provisions within the capital allowances rules. For example, there are anti-avoidance rules affecting integral features (see Practice

1 Capital allowances—for use where the Seller has claimed a first-year allowance or pooled qualifying expenditure on plant and machinery fixtures and the parties will enter into a s 198/s 199 joint fixtures election on completion 1.1 In this clause 1: CAA 2001 • means the Capital Allowances Act 2001; Fixtures • means all plant and machinery which is installed or otherwise fixed in or to the Property so as to become (in law) part of the Property including any boiler or water-filled radiator under section 173(1) of CAA 2001; HMRC • means HM Revenue & Customs; Main Pool Plant • means those Fixtures included by the Seller in the main pool under section 54 of CAA 2001 Prior Right • has the meaning of prior right for the purposes of section 181(2) of CAA 2001 Special Rate Pool Plant • means those Fixtures included in a special rate pool under section 104C of CAA 2001 1.2 On Completion the Seller and the Buyer shall make an election in respect of the Fixtures under section 198 of CAA 2001 in the form annexed at Schedule [insert reference] (the ‘Election’), and shall each, within [insert number] working days of Completion,

1 Capital allowances 1.1 In this clause 1: CAA 2001 • means the Capital Allowances Act 2001 Plant or Machinery • means those items forming part of the Tenant’s Works which constitute plant or machinery for the purposes of Part 2 of CAA 2001 Landlord’s Contribution • £[insert figure] plus VAT (if any) SBA Assets • means those items forming part of the Tenant’s Works on which expenditure qualifies for structures and buildings allowances under Part 2A of CAA 2001 Special Rate Plant • means Plant or Machinery on which expenditure would be classified as special rate expenditure under CAA 2001, s 104A [Tenant’s

This Practice Note is about capital allowance-related pre-contract enquiries on a property transfer. It applies to the grant of a new property interest (eg a lease) as well as to the acquisition of an existing lease or freehold. For clauses and warranties that should be included in a property sale contract relating to the buyer and seller’s capital allowances position in respect of any fixtures in the property, see Precedent: Capital allowances clauses for property sale contracts. Pre-contract enquiries On most property acquisitions, the buyer, through the buyer’s solicitor, should ask a number of standard questions, some of which will relate to capital allowances (purchases at auction may be an exception). These questions need to be answered by the seller to the buyer’s satisfaction: they are important and can have a significant impact on the buyer’s claim for allowances. Answers such as ‘not applicable’, ‘not necessary’, ‘don’t know’, ‘ask accountant’ or 'buyer to make own enquiries' are unacceptable. Very often, the buyer’s position can be adversely affected by documentation, including

HMRC has provided an update to the CIOT on the guidance relating to capital allowances and the areas of uncertainty identified by stakeholders. The update outlines the revisions made to the existing guidance and the areas that remain under review.