Commentary

B3.364 Capital allowance buying

Business tax
Business tax | Commentary

B3.364 Capital allowance buying

Business tax | Commentary

Anti-avoidance

B3.364 Capital allowance buying

Anti-avoidance legislation applies to prevent tax avoidance through the transfer of an entitlement to benefit from plant and machinery capital allowances where the tax written-down value of the plant and machinery exceeds its balance sheet value. The legislation is consistent with the rules to deter loss buying transactions (see D1.1126 and D2.401) and will restrict the way in which capital allowances can be utilised following a transfer of entitlement to benefit from those capital allowances. It aims to prevent a company or group obtaining relief for excess capital allowances against its existing profit by effectively acquiring capital allowances from a company, an increased share in a company or partnership, or a qualifying activity.

When the legislation applies

The legislation applies where1:

  1.  

    •     a company (C) carries on a qualifying activity (the relevant activity) either alone or in partnership (P) with another person or persons

  2.  

    •     there is a qualifying change in relation to C on any day (the relevant day)

  3.  

    •     C or P has a relevant excess of allowances in relation to the relevant activity, and

  4.  

    •     the qualifying change meets one of the limiting conditions

Qualifying change

There is a qualifying change in relation to C on the relevant day if one or more of the following conditions is met2:

  1.  

    (A)    

    1.  

      (i)     There is a change in the principal company or companies of C on the relevant day, or

    2.  

      (ii)     C is not owned by another company at the beginning of the

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