CA37450 - IBA: enterprise zones: buildings bought unused
Budget 2007 announced a business tax reform package including the gradual withdrawal of IBAs and ABAs over four years. Legislation was introduced in FA08 to give effect to those changes. The phased withdrawal of IBA writing down allowances had effect for chargeable periods ending on or after 1 April 2008 for businesses within the charge to CT and 6 April 2008 for businesses within the charge to IT. This phasing out does not apply to EZ WDAs. They continue in full until the cut-off date. There are no IBA writing down allowances for the financial year beginning on 1 April 2011 and subsequent years.
CAA01/S302
You may get a claim for enterprise zone allowances from a person who buys an unused building in an enterprise zone. If you do you should check the date on which the construction expenditure was incurred because it is the date on which the construction expenditure was incurred and not the date of purchase that matters in deciding whether enterprise zone allowances are available.
A person who buys an unused building in an enterprise zone can claim enterprise zone allowance if all or part of the construction expenditure was incurred:
- during the life of the zone, or
- within 10 years after the life of the zone has expired, under a contract entered into during the life of the zone.
If part of the construction expenditure was incurred during the life of the zone (or in the following 10 years but under a contract entered into during the life of the zone) and part was not, split the buyer’s qualifying expenditure into a qualifying enterprise zone element and a non-qualifying enterprise zone element. Give enterprise zone allowances on the qualifying enterprise zone element and deal with the non-qualifying enterprise zone element under the normal IBA rules.
The buyer’s qualifying expenditure may be the original construction expenditure or the purchase price.
If the qualifying expenditure is the original construction expenditure the enterprise zone element is the part of the construction expenditure that is enterprise zone expenditure.
If the qualifying expenditure is the purchase price the enterprise zone element of the qualifying expenditure is:
| qualifying expenditure x | enterprise zone construction expenditure on building divided by |
|---|---|
| total construction expenditure on building |
Example Charles builds a building in an enterprise zone for £1million excluding the cost of the land. £750,000 of that expenditure was incurred during the life of the zone. This means that £750,000 of the construction expenditure is enterprise zone construction expenditure. Charles sells the building to Frank for £1.2 million before it is brought into use.
If Charles is a property developer, the qualifying enterprise zone element of Frank’s qualifying expenditure is £900,000 = £1.2 million x £750,000 / £1million. In any other case Frank’s expenditure qualifying for enterprise zone allowances is £750,000 because that was the part of Charles’s construction expenditure that was enterprise zone expenditure.