279 Purchases of certain buildings or structures

Summary

In general, capital allowances in respect of industrial buildings or structures are given to the person who actually incurred the capital expenditure on construction of the building or structure or who holds the relevant interest in relation to that expenditure. Special rules apply, however, in the case of expenditure incurred on the construction of an industrial building or structure which is sold before it is used or within a period of two years (or one year in the case of sales that took place before 14 October 2008) after it commences to be used. In such cases, the purchaser (even though no expenditure has actually been incurred on construction by the purchaser) is entitled to capital allowances provided no allowances in respect of the construction expenditure have been claimed by any other person. In effect, the purchaser is deemed to have incurred capital expenditure on the construction of the building or structure on the date the purchase price is payable and not when the actual construction expenditure was incurred. The amount of this deemed construction expenditure depends on whether the actual expenditure on the construction of the building or structure was incurred by a builder or a non-builder.

In the case of buildings and structures qualifying under certain tax incentives schemes, the provisions of this section are applied in a modified way by subsection (6) of section 270 to take account of restrictions, under that section, on the amount of expenditure which may qualify for capital allowances (see notes on section 270).

Details

Definition

(1) “the net price paid” is the amount determined by the formula —

Construction expenditure incurred by non-builder

(2) Where the expenditure on the construction of a building or structure is incurred by a nonbuilder and the relevant interest in the building or structure is sold before the building or structure is used or within a period of two years (or one year in the case of sales that took place before 14 October 2008) after it commences to be used, then, provided no capital allowances have been claimed in respect of that expenditure by any other person, the purchaser is deemed to have incurred capital expenditure on the construction of the building or structure equal to the lower of the actual construction expenditure incurred by the nonbuilder and the net price paid by the purchaser for the relevant interest. Where there is more than one sale before the building or structure is used or within the two year period after it commences to be used, the deemed expenditure is the lower of the actual construction expenditure incurred by the non-builder and the net price paid by the last purchaser of the relevant interest. In either case the capital expenditure deemed to have been incurred by the purchaser is treated as having been incurred on the date the purchase price is payable and not when the actual construction expenditure was incurred.

Construction expenditure incurred by builder

(3) Where the expenditure on the construction of a building or structure is incurred by a builder and the relevant interest in the building or structure is sold before the building or structure is used or within a period of two years (or one year in the case of sales that took place before 14 October 2008) after it commences to be used, then, provided no capital allowances have been claimed in respect of that expenditure by any other person, the purchaser is deemed to have incurred capital expenditure on the construction of the building or structure equal to the net price paid by the purchaser for the relevant interest. Where there is more than one sale before the building or structure is used or within the two year period after it commences to be used, the deemed expenditure is the lower of the net price paid on the first sale and the net price paid on the last sale. Again, the capital expenditure deemed to have been incurred by the purchaser is treated as having been incurred on the date the purchase price is payable and not when the actual construction expenditure was incurred.

Tax Incentive schemes – modified application of this section

Under section 270, capital expenditure incurred in the year 2007 and in the period 1 January 2008 to 31 July 2008 on the construction and refurbishment of industrial and commercial buildings and structures under a number of tax incentive schemes must be restricted to 75 per cent and 50 per cent respectively. Restrictions also apply in the case of qualifying residential units up to 30 April 2010. The schemes affected are set out in section 270(4). Additionally an overall cap applies under section 270(7) for some of these schemes on the amount of such expenditure which may qualify in the period 1 January 2007 to 31 July 2008.

s. 270(6) Where these restrictions apply, subsection (6) of section 270 makes certain amendments to the operation of this section. These are to ensure that where a building is sold, the purchaser will not be entitled to claim allowances on the full expenditure incurred but rather on that expenditure as reduced in accordance with the respective reductions to 75 per cent and 50 per cent under section 270(5) which apply to expenditure incurred in the year 2007 and the first 7 months of 2008 and any restriction on post December 2006 expenditure which may arise under section 270(7). Likewise restrictions on expenditure up to 30 April 2010 in the case of qualifying residential units (under section 270(5) but by virtue of section 270(8)) are covered.

s. 270(6)(a) When calculating the formula for “the net price paid” the numerator “C” in the formula should be the amount of construction expenditure (incurred in the qualifying period for the scheme) as reduced in accordance with sections 270(5) and 270(7). The denominator “C” in the original formula – now “D” in the revised formula as applied by section 270 – should include the full amount of expenditure incurred on the construction of the building or structure involved i.e. before any restrictions and whether or not incurred in the qualifying period for the particular scheme.

s. 270(6)(b) & (c) Likewise references in subsections (2) and (3) of this section to expenditure on the construction or refurbishment of a building or structure are to be treated as references to that expenditure as reduced in accordance with section 270.

Relevant Date: Finance Act 2019