311 Apportionment of consideration and exchanges and surrenders of leasehold interests

Summary

This section provides that where 2 or more assets are sold in one transaction, the net proceeds attributable to each asset are to be ascertained on the basis of a just apportionment of the full proceeds. The same principle applies in the case of the receipt of insurance, salvage or compensation moneys in respect of 2 or more assets.

Details

Multiple sales

(1)(a) It often happens that several assets of the same kind or that assets of several kinds change hands as part of the same bargain (for example, where a business is sold as a going concern, a single lump sum may be paid by the purchaser in order to acquire, say, industrial buildings or structures, machinery and plant, and goodwill.) In any case where there is a sale of property together with other property, then, for the purposes of capital allowances and charges under Part 9, there must be a just apportionment of the sale price so as to isolate the part of the net proceeds attributable to each particular asset. In effect, this is done for the purpose of making a balancing allowance or a balancing charge to or on the vendor, and also for the purpose of determining the capital allowances to be made to the purchaser in respect of his acquisition of the particular asset.

(1)(b) The above rule applies even where separate prices are, or purport to be, agreed for separate assets or that there are, or purport to be, separate sales of separate assets. This enables the Revenue to disregard an allocation of an aggregate price amongst different assets sold together (see, however, section 314 which provides for a right of appeal against an apportionment made by an inspector under this section).

Insurance, salvage or compensation moneys

(2) The same just apportionment rules apply where insurance, salvage or compensation moneys are received in respect of a number of assets (for example, where the fixed and moveable assets of a business are destroyed by fire and a single lump sum is recovered from the insurance company in respect of their destruction).

Exchanges of property and surrender of leasehold interests

(3) The meaning of sale is extended to include a transaction where assets are exchanged.

The meaning of sale also covers a case where a lessor pays a sum of money to a tenant in return for the latter surrendering a lease. Thus, if a tenant, having received capital allowances in respect of capital expenditure incurred on an industrial building or structure, gives up the tenancy before the due date of expiry and receives compensation from the lessor for doing so, the tenant’s balancing allowance (if any) is to be equal to the expenditure unallowed less the compensation payment received from the lessor. Alternatively, a balancing charge arises if the compensation payment exceeds the expenditure unallowed.

[It should be noted that section 281(3) deals with the case where a lessor terminates a lease before the expiration of its full term, subject to payment of compensation to the lessee. In such a case, the compensation paid is deemed to be a sum paid in consideration of the surrender of a lease and the above-mentioned rule applies accordingly.]

Certain transfers not to be treated as an exchange of property

(3A) The transfer of a building or structure (within the meaning of section 268), to be held in trust for the benefit of creditors under a Debt Settlement Arrangement or a Personal Insolvency Arrangement, in accordance with section 66(2)(c) or section 100(2)(c) respectively, of the Personal Insolvency Act 2012, shall not be treated as an exchange of property for the purpose of Part 9.

Capital allowances for mining and scientific research

(4) The rules in this section also apply in relation to capital allowances for mining and scientific research.

Relevant Date: Finance Act 2019