409H Restriction on use of capital allowances

Summary

This section has the effect of restricting the use of both specified and area-based capital allowances to income from the trade or premises that gave rise to it. It applies in all cases where the income is rental income and in the case of individuals where the person is a “passive” participant in the business. Provision is made to disapply these restrictions in circumstances where the person is actively engaged in the trade.

Details

(1) Where an individual carries on a trade otherwise than as an active trader, any area-based or specified capital allowance to which that individual becomes entitled may only be set against income from that trade and cannot be used in computing any other income or profits or charging any other income to tax. This ring-fences the use of these capital allowances.

(2)(a) Where any person (individual or company) is entitled to any area-based or specified capital allowance in determining income chargeable to tax under Case V of Schedule D (rental income), those capital allowances may only be set against rental income arising from the building or structure which gave rise to the capital allowance in the first place.

(2)(b) The manner of making allowances and charges, provided for in section 278 is used in making the allowances provided for in paragraph (a).

(2)(c) Section 305(1)(c) applies to any capital allowance made in accordance with paragraph (a).

(3) In the chargeable period in which the relevant day occurs, provision is made to ensure that in relation to the conduct of a trade or the receipt of rental income, the restriction (restriction to income from the trade or building or structure) of capital allowances provided for in this section only applies in respect of income earned on or after that relevant day. This ensures that there is no retrospective effect of these restrictions.

Relevant Date: Finance Act 2019