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Capital allowances anti-avoidance

Capital allowances anti-avoidance

Didn't find your answer?

I would expect there to be anti-avoidance to cover this, but can't find anything at the moment (perhaps it's covered by GAAR?):

Let's say we're a couple of years down the line when the AIA is £25k. My company incurs qualifying expenditure of £500k, most of it at 8% pa. This means that I will need to wait years to obtain anything like a reasonable amount of relief. So, I form a new company and transfer everything across, with a consideration of £1 for plant and machinery. Result - qualifying expenditure immediately relieved in full. Sounds too good to be true, but the only anti-avoidance that I can find restricts the buyer's allowances - which would not apply in this case. So, what have I missed?

Replies (18)

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Stepurhan
By stepurhan
30th Oct 2014 12:08

Related parties

It sounds like the two companies would be related parties, so revision to market value would seem to apply. There is the alternative of substituting tax written down value for market value, but that would obviously defeat the object anyway.

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By Ruddles
30th Oct 2014 12:11

Market value?

Why would market value apply? The plant etc is sold for £1, not gifted.

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Stepurhan
By stepurhan
30th Oct 2014 12:35

Why would it not apply?

I believe it applies to all transfers between related parties. To take your assertion to the extreme, paying 1p could be enough to avoid substantial tax implications otherwise.

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By Ruddles
30th Oct 2014 12:44

Why would it apply?

Please read CAA 2001 s61(2),(4).

Where is the legislation (which is effectively what my initial question was) that says that market value - or some other anti-avoidance measure - should apply?

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Replying to Tom 7000:
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By Manchester_man
30th Oct 2014 18:45

I can't be bothered reading through the CAA you refer to but I can assure you Stepurhan is correct.

Market value applies if the parties are connected.

It might not be the answer you hoped for, but it's the correct answer.

Also, as stated above, an election can be made to substitute TWDV but in that case you wouldn't get the AIA anyway.

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Replying to bookmarklee:
Portia profile image
By Portia Nina Levin
31st Oct 2014 10:20

You could not be bothered?

Manchester_man wrote:
I can't be bothered reading through the CAA you refer to but I can assure you Stepurhan is correct. Market value applies if the parties are connected. It might not be the answer you hoped for, but it's the correct answer. Also, as stated above, an election can be made to substitute TWDV but in that case you wouldn't get the AIA anyway.

Well if you had bothered to read the legislation, you would have seen that stepurhan is, in fact, incorrect. You and he are referring to the succession provisions in CAA 2001, section 265 to 267, which apply to "relevant property", being property which (per section 265(3)(b)) is not sold (between the parties).

So if the property is sold, and the purchaser can claim capital allowances, item 1 in the table in section 61(2) applies and the disposal value is the sale proceeds amount.

As the OP notes, CTA 2010, section 948 will override this where the transfer is of a trade between companies under the same 75% ownership.

In the case of any intra-group transfer, section 948 will certainly apply if the transfer is of a trade. For a transfer out of a group there may be other implications (distributions, value shifting, CGT disposals, disposal of intangibles, etc).

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By Manchester_man
30th Oct 2014 19:06

.

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By Ruddles
30th Oct 2014 19:27

I'm not "hoping" for any particular answer

I would just like the correct one - which I'm not convinced has been given.

If you can't be bothered to look at the relevant legislation, how can you be so sure of the answer? Your "assurance" means nothing without reference to the relevant statutory or other authority.

Please point me to the legislation that says that market value must apply if the parties are connected.

 

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By plummy1
30th Oct 2014 19:55

This Article will be of interest.

The following article although written in 2011 should be of interest, You are talking about an artificial transaction purely designed to accelerate the tax relief which would fall fowl of the legislation:-

http://www.cap-allow.com/articles/capital-allowances-anti-avoidance

 

Hope this helps.

John

 

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By Ruddles
30th Oct 2014 20:38

Thanks, John

At least someone has taken the time to provide some backup.

But that article merely adds to my uncertainty. Because the measures referred to, basically those that I have already found and to which I allude in my opening question, operate by restricting the buyer's allowances. That is not relevant in my case.

EDIT - think I've found the answer. I was looking too closely at the capital allowances legislation, and believe that in the case of a trading company (as in my theoretical example) then CTA 2010 s948 would apply. But presubably non-trading companies could still obtain the balancing allowance?

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Stepurhan
By stepurhan
01st Nov 2014 09:15

Read the legislation

As Ruddles kindly referred to the part of the legislation they were querying, I have read the relevant section. My first reaction was that this fell under a case 2 disposal event (which would have led to market value as I originally opined) but it does appear that the condition in subsection (4) (required for a case 2 disposal) is not met by the buyer. That being the case, the plan would appear to be effective on the basis of the CAA. 

As plummy1 has pointed out, the General Anti-Avoidance Rule is likely to come into play (as this seems to be a wholly artificial transaction to gain a tax advantage) but that is a separate matter.

The part of the legislation Ruddles referred to can be found here for those not wishing to read the whole act

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By BKD
01st Nov 2014 09:59

Except, Stepurhan ...

... that as Ruddles and Portia point out, in the case of a transfer of trade to a company under the same 75% ownership s948 of CTA 2010 is likely to defeat the plan without any need for anti-avoidance. It could work in other cases (but with other implications as mentioned by Portia - I assume, Portia, that you just threw in value-shifting from a list, because I can't see how value-shifting could ever be in point), but not it would seem in the circumstances envisaged by Ruddles.

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Portia profile image
By Portia Nina Levin
01st Nov 2014 10:09

List throwing

I did not throw value shifting in from a list, I threw it in to a list. The reason I threw it in to the list was because where section 948 does not apply and valuable assets that are not chargeable assets leave a company it might come into point.

It is hard to imagine every conceivable circumstance where the point the OP has asked might operate and what the multifarious effects might be. The list was merely a means of demonstrating the considerations that might need to be made in any given situation. It is probably not a complete list.

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By BKD
01st Nov 2014 11:39

Point taken, Portia

But in order to invoke value-shifting you would need to invent a particular arrangement put in place in addition to the transfer of assets. The list of such permutations is of course endless, but in the context of the OP's question I consider that value-shifting is utterly irrelevant. Value-shifting would apply only if there were to be some alteration to the existing share rights/structure of the company (which admittedly could happen in conjunction with the asset transfer). But then you might as well add that there could be overseas tax implications, CT61 issues etc etc.

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By plummy1
02nd Nov 2014 22:02

I hope this helps again

I still think the answer is within the CAA

Either  Section 197 Disposal Values in Avoidance Cases or Chapter 17 - Connected Party Rules.   

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By BKD
03rd Nov 2014 09:21

Plummy

The OP was talking about plant and equipment so s197 would not apply (as that chapter relates to fixtures). Chapter 17 wouldn't bite becasue, as already stated above, that anti-avoidance applies by restricting the buyer's allowances - which would have no effect if the assets are transferred for a nominal amount. It has been made clear that in the circumstances envisaged by the OP you need look no further than CTA 2010 s948. No anti-avoidance is required.

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By plummy1
03rd Nov 2014 15:10

BKD

The OP actually refers to Plant & Machinery not Plant & Equipment. Fixtures as defined in the capital allowances act still come under the generic heading of either Plant or Machinery although I admit there is a lot of confusion on this subject. In the same way that some don't understand that Integral Features are still fixtures 

However I think you are probably right that the OP is not referring to "Fixtures" as defined in CAA so I shall slink back into the shadows.

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By beresfordt
04th Nov 2014 09:34

Just and reasonable apportionment

I think the piece of legislation you are looking for is CAA2001 s562 - just and reasonable apportionment.

On the basis that everything is transferred (this transfer being a sale within s572) as part of one agreement (or deemed connected agreement) then s562 would apply which means the net proceeds of the sale (which also determines the disposal value under s61) "for a particular item is so much of the net proceeds of sale of all the property as, on a just and reasonable apportionment, is attributable to that item".

s562 then goes on to confirm that the purchaser's expenditure on the item is based on the same just and reasonable apportionment.

Assuming the plant and machinery are assets can be valued in the open market by a qualified valuer or there is readily available comparable values then I would suggest these values would form the basis of any just and reasonable apportionment that would replace the £1 purported transfer price agreed by the parties.

If the assets in question are fixtures, which has been raised, then s198 does allow the parties to agree a value that is an alterative to the usual just and reasonable apportionment.

Here, however, you do need to be aware of the s197 anti-avoidance provisions if "the main or one of the main purposes of electing at below notional TWDV is to gain a tax advantage under Part 2 of CAA2001 - interestingly you are okay if the advantage is for any other reason"

From the proposed scenario set out by Ruddles if we are talking about fixtures then I think s197 would certainly apply

Hope that helps.

 

 

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