372D Capital allowances in relation to construction or refurbishment of certain commercial premises.

(1) In this section, “qualifying premises” means a building or structure ^[8]>or part of a building or structure^<[8] the site of which is wholly within a qualifying area^[10]>, or which fronts on to a qualifying street,^<[10] and which—

(a) apart from this section is not an industrial building or structure within the meaning of section 268, and

(b) (i) is in use for the purposes of a trade or profession, or

(ii) whether or not it is so used, is let on bona fide commercial terms for such consideration as might be expected to be paid in a letting of the building or structure negotiated on an arm’s length basis,

but does not include any part of a building or structure in use as or as part of a dwelling house.

(2) (a) ^[16]>Subject to paragraph (b) and ^[1]>subsections (3) to (6)^<[1][5]>[1]>subsections (3) to (6A)^<[1]<[5][5]>subsections (3) to (5)^{<[5]<[16][16]>}Subject to paragraph (b), subsections (3) to (5) and (as inserted by the Finance Act 2006) sections 270(4), 270(5), 270(6), 270(7) and 316(2B)^<[16], the provisions of the Tax Acts (other than section 372C) relating to the making of allowances or charges in respect of capital expenditure incurred on the construction or refurbishment of an industrial building or structure shall, notwithstanding anything to the contrary in those provisions, apply—

(i) as if a qualifying premises were, at all times at which it is a qualifying premises, a building or structure in respect of which an allowance is to be made for the purposes of income tax or corporation tax, as the case may be, under Chapter 1 of Part 9 by reason of its use for a purpose specified in section 268(1)(a), and

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(ii) where any activity carried on in the qualifying premises is not a trade, as if it were a trade.

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(ii) where any activity—

(I) carried on in the qualifying premises, or

(II) in a case where the facade of a building or structure or part of a building or structure is a qualifying premises, carried on in the building or structure or the part of the building or structure,

is not a trade, as if it were a trade.

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(b) An allowance shall be given by virtue of this subsection in respect of any capital expenditure incurred on the construction or refurbishment of a qualifying premises only in so far as that expenditure is incurred in the qualifying period.

(3) In the case where capital expenditure is incurred in the qualifying period on the refurbishment of a qualifying premises, subsection (2) shall apply only if the total amount of the capital expenditure so incurred is not less than an amount equal to 10 per cent of the market value of the qualifying premises immediately before that expenditure was incurred.

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(3A) (a) In the case of a qualifying premises which fronts on to a ^[12]>designated street^<[12][12]>qualifying street^<[12], subsection (2) shall apply in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of the qualifying premises, only if—

(i) the qualifying premises are comprised in the ground floor of—

(I) an existing building, or

(II) a replacement building,

and

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(ii) apart from the capital expenditure incurred in the qualifying period on the construction or refurbishment of the qualifying premises, expenditure is incurred on the upper floor or floors of the existing building or the replacement building, as the case may be, which is—

(I) expenditure on the construction (being necessary construction) of a qualifying premises as defined in section 372F,

(II) conversion expenditure within the meaning of section 372G,

(III) relevant expenditure within the meaning of section 372H, or

(IV) qualifying expenditure within the meaning of section 372I (being qualifying expenditure on necessary construction, or on refurbishment within the meaning of that section),

and in respect of which a deduction has been given, or would on due claim being made be given, under section 372F, 372G, 372H or 372I, as the case may be.

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(ii) apart from the capital expenditure incurred in the qualifying period on the construction or refurbishment of the qualifying premises, expenditure is incurred on the upper floor or floors of the existing building or the replacement building, as the case may be, which is—

(I) eligible expenditure within the meaning of Chapter 11 of this Part (being eligible expenditure on necessary construction, or conversion expenditure or refurbishment expenditure within the meaning of that Chapter), or

(II) qualifying expenditure within the meaning of Chapter 11 of this Part (being qualifying expenditure on necessary construction, on conversion or on refurbishment within the meaning of that Chapter),

and in respect of which a deduction has been given, or would on due claim being made be given, under section 372AP or 372AR.

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(b) Notwithstanding paragraph (a), subsection (2) shall not apply in relation to so much (if any) of the capital expenditure incurred in the qualifying period on the construction or refurbishment of the qualifying premises as exceeds the amount of the deduction, or the aggregate amount of the deductions, which has been given, or which would on due claim being made be given, under section 372F, 372G, 372H or 372I, as the case may be, in respect of the expenditure on construction (being necessary construction), conversion expenditure, the relevant expenditure or, as the case may be, the qualifying expenditure (being qualifying expenditure on necessary construction, or on refurbishment).

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(b) Notwithstanding paragraph (a), subsection (2) shall not apply in relation to so much (if any) of the capital expenditure incurred in the qualifying period on the construction or refurbishment of the qualifying premises as exceeds the amount of the deduction, or the aggregate amount of the deductions, which has been given, or which would on due claim being made be given, under section 372AP or 372AR in respect of the eligible expenditure referred to in paragraph (a)(ii)(I) or the qualifying expenditure referred to in paragraph (a)(ii)(II).

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(4) For the purposes of the application, by subsection (2), of sections 271 and 273 in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of a qualifying premises—

(a) section 271 shall apply as if—

(i) in subsection (1) of that section the definition of “industrial development agency” were deleted,

(ii) in subsection (2)(a)(i) of that section “to which subsection (3) applies” were deleted,

(iii) subsection (3) of that section were deleted,

(iv) the following subsection were substituted for subsection (4) of that section:

“(4) An industrial building allowance shall be of an amount equal to 50 per cent of the capital expenditure mentioned in subsection (2). ”,

and

(v) in subsection (5) of that section “to which subsection (3)(c) applies” were deleted,

and

(b) section 273 shall apply as if—

(i) in subsection (1) of that section the definition of “industrial development agency” were deleted, ^[9]>and^<[9]

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(ii) subsections (2)(b) and (3) to (7) of that section were deleted.

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(ii) the following paragraph were substituted for paragraph (b) of subsection (2) of that section:

“(b) As respects any qualifying expenditure, any allowance made under section 272 and increased under paragraph (a) in respect of that expenditure, whether claimed for one chargeable period or more than one such period, shall not in the aggregate exceed 50 per cent of the amount of that qualifying expenditure.”,

and

(iii) subsections (3) to (7) of that section were deleted.

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(5) Notwithstanding section 274(1), no balancing charge shall be made in relation to a qualifying premises by reason of any of the events specified in that section which occur—

(a) more than 13 years after the qualifying premises was first used, or

(b) in a case where section 276 applies, more than 13 years after the capital expenditure on refurbishment of the qualifying premises was incurred.

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(6) (a) Notwithstanding subsections (2) to (4) ^[2]>but subject to section 372B(1)(b)^<[2], any allowance or charge which apart from this subsection would be made by virtue of subsection (2) in respect of capital expenditure incurred on the construction or refurbishment of a qualifying premises shall be reduced to one-half of the amount which apart from this subsection would be the amount of that allowance or charge.

(b) For the purposes of paragraph (a), the amount of an allowance or charge to be reduced to one-half shall be computed as if—

(i) this subsection had not been enacted, and

(ii) effect had been given to all allowances taken into account in so computing that amount.

(c) Nothing in this subsection shall affect the operation of section 274(8).

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(6A) Where an order made under section 372B(1) directs that subsection (6) shall not apply in relation to a qualifying area, subsection (4) shall apply in relation to that qualifying area as if—

(a) the reference in paragraph (a)(iv) of that subsection to 50 per cent were a reference to 25 per cent, and

(b) the following subparagraphs were substituted for subparagraph (ii) of paragraph (b) of that subsection:

‘(ii) the following paragraph were substituted for paragraph (b) of subsection (2) of that section:

“(b) As respects any qualifying expenditure, any allowance made under section 272 and increased under paragraph (a) in respect of that expenditure, whether claimed for one chargeable period or more than one such period, shall not in the aggregate exceed 50 per cent of the amount of that qualifying expenditure.”,

and

(iii) subsections (3) to (7) of that section were deleted.’

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(7) For the purposes only of determining, in relation to a claim for an allowance by virtue of subsection (2), whether and to what extent capital expenditure incurred on the construction or refurbishment of a qualifying premises is incurred or not incurred in the qualifying period, only such an amount of that capital expenditure as is properly attributable to work on the construction or refurbishment of the premises actually carried out during the qualifying period shall (notwithstanding any other provision of the Tax Acts as to the time when any capital expenditure is or is to be treated as incurred) be treated as having been incurred in that period.