Finance Act 1982

Section 76.

SCHEDULE 12 Capital Allowances for Dwelling-Houses Let on Assured Tenancies

Initial allowances

1 (1) Subject to the provisions of this Schedule, where an approved body incurs capital expenditure on the construction of a building which is to be or to include a qualifying dwelling-house, then, for the chargeable period related to the incurring of that expenditure an allowance (in this Schedule referred to as an "initial allowance ") shall be made to that body in respect of each qualifying dwelling-house to be comprised in the building.

(2) An initial allowance in respect of a qualifying dwelling-house shall be of an amount equal to three-quarters of the capital expenditure appropriate to that dwelling-house.

(3) No initial allowance shall be made in respect of any expenditure if, when the dwelling-house to which it relates comes to be used, it is not a qualifying dwelling-house ; and where an initial allowance has been granted in respect of any expenditure otherwise than in accordance with the provisions of this paragraph, all such assessments shall be made as are necessary to secure that effect is given to those provisions.

(4) For the purposes of this Schedule, the capital expenditure appropriate to a dwelling-house shall be determined as follows: —

(a) if the building concerned consists of a single qualifying dwelling-house, then, subject to the relevant limit, the whole of the capital expenditure referred to in sub-paragraph (1) above is appropriate to that dwelling-house ; and

(b) in the case of a dwelling-house which forms part of a building, the capital expenditure appropriate to it is, subject to the relevant limit, the aggregate of—

(i) that proportion of the capital expenditure referred to in sub-paragraph (1) above which is properly attributable to the construction of that dwelling-house ; and

(ii) where there are common parts of the building, such proportion of the capital expenditure on those common parts as it is just and reasonable to attribute to the dwelling-house and as does not exceed one-tenth of that proportion of the capital expenditure referred to in paragraph (i) above;

and in this Schedule " the relevant limit" means £60,000, if the dwelling-house is in Greater London, and £40,000 if it is elsewhere

(5) In sub-paragraph (4) above " common parts ", in relation to a building, means common parts of the building which—

(a) are not intended to be in separate occupation (whether for domestic, commercial or other purposes); and

(b) are intended to be of benefit to some or all of the qualifying dwelling-houses included in the building;

and the capital expenditure on any such parts of the building is so much of the expenditure referred to in sub-paragraph (1) above as it is just and reasonable to attribute to those parts.

Writing-down allowances

2 (1) Subject to the provisions of this Schedule, where—

(a) an approved body or a body which has been an approved body is, at the end of a chargeable period or its basis period, entitled to an interest in a building, and

(b) at the end of that chargeable period or its basis period, the building is or includes a qualifying dwelling-house or two or more qualifying dwelling-houses, and

(c) that interest is the relevant interest in relation to the capital expenditure incurred on the construction on that building,

an allowance (in this Schedule referred to as " a writing-down allowance ") shall be made to that body for that chargeable period in respect of the dwelling-house or, as the case may be, each dwelling-house falling within paragraph (b) above.

(2) The writing-down allowance in respect of a dwelling-house shall be equal to one twenty-fifth of the capital expenditure which is appropriate to that dwelling-house, except that for a chargeable period of less than a year that fraction shall be proportionately reduced.

(3) If, in the case of a building which is or includes a qualifying dwelling-house.—

(a) the interest which is the relevant interest in relation to any expenditure is sold, and

(b) the sale is an event to which paragraph 4(1) below applies,

then (subject to any further adjustment under this sub-paragraph on a later sale) the writing-down allowance in respect of that dwelling-house for any chargeable period, if that chargeable period or its basis period ends after the time of the sale, shall be the residue, as denned in paragraph 7(1) below, of that expenditure immediately after the sale, reduced in the proportion (if it is less than one) which the length of the chargeable period bears to the part unexpired at the date of the sale of the period of 25 years beginning with the time when the building was first used.

(4) Notwithstanding anything in the preceeding provisions of this paragraph, in no case shall the amount of a writing-down allowance made to a body for any chargeable period in respect of any expenditure exceed what, apart from the writing-off falling to be made by reason of the making of that allowance, would be the residue of that expenditure at the end of that chargeable period of its basis period.

Qualifying dwelling-house

3 (1) In this Schedule " qualifying dwelling-house " means, subject to the following provisions of this paragraph, a dwelling-house let on a tenancy which is for the time being an assured tenancy, within the meaning of section 56 of the [1980 c. 51.] Housing Act 1980.

(2) Without prejudice to section 57 of the Housing Act 1980 (by virtue of which certain tenancies continue to be treated as assured tenancies notwithstanding that the landlord has ceased to be an approved body by reason of a variation in the description of bodies for the time being approved) a dwelling-house which has been a qualifying dwelling-house by virtue of sub-paragraph (1) above shall be regarded as a qualifying dwelling-house at any time when—

(a) it is for the time being subject to regulated tenancy or a housing association tenancy ; and

(b) the landlord under that tenancy either is an approved body or was an approved body but has ceased to be such for any reason.

(3) Notwithstanding that a dwelling-house is let as mentioned in sub-paragraph (1) or sub-paragraph (2) above, it is not a qualifying dwelling-house for the purposes of this Schedule—

(a) unless the landlord is for the time being entitled to the relevant interest in the dwelling-house or is the person who incurred the capital expenditure on the construction of the building in which the dwelling-house is comprised ; or

(b) if the landlord is a housing association which is approved for the purposes of section 341 of the Taxes Act (cooperative housing associations) or is a self-build society, within the meaning of Part I of the [1974 c. 44.] Housing Act 1974 ; or

(c) if the landlord and the tenant are connected persons ; or

(d) if the tenant is a director of a company which is or is connected with the landlord ; or

(e) if the landlord is a close company and the tenant is, for the purposes of Chapter III of Part XI of the Taxes Act, a participator in that company or an associate of such a participator ; or

(f) if the tenancy is entered into as part of an arrangement between the landlords (or owners) of different dwelling houses under which one landlord takes a person as a tenant in circumstances where, if that person was the tenant of a dwelling-house let by the other landlord, that dwelling-house would not be a qualifying dwelling-house by virtue of any of paragraphs (c) to (e) above ;

and section 533 of the Taxes Act (connected persons) applies for the purposes of this sub-paragraph.

(4) In this paragraph " regulated tenancy " and " housing association tenancy " have the same meaning as in the [1977 c. 42.] Rent Act 1977.

Balancing allowances and balancing charges

4 (1) Where any capital expenditure has been incurred on the construction of such a building as is referred to in paragraph 1(1) above and any of the following events occur while a dwelling-house comprised in that building is a qualifying dwelling-house, that is to say—

(a) the relevant interest in the dwelling-house is sold, or

(b) that interest, being a leasehold interest, comes to an end otherwise than on the person entitled to it aquiring the interest which is reversionary on it, or

(c) the dwelling-house is demolished or destroyed or, without being demolished or destroyed, ceases altogether to be used,

then, subject to sub-paragraph (2) below, for the chargeable period related to that event an allowance or charge (in this Schedule referred to as a " balancing allowance " or a " balancing charge ") shall, in the circumstances mentioned below, be made to or, as the case may be, on the person entitled to the relevant interest immediately before that event occurs.

(2) No balancing allowance or balancing charge shall be made by reason of any event occurring more than twenty-five years after the dwelling-house was first used.

(3) Subject to paragraph 5 below, where there are no sale, insurance, salvage or compensation moneys, or where the residue of the expenditure immediately before the event exceeds those moneys, a balancing allowance shall be made and the amount of it shall be the amount of that residue or, as the case may be, of the excess of that residue over those moneys.

(4) Subject to paragraph 5 below, if the sale, insurance, salvage or compensation moneys exceed the residue, if any, of the expenditure immediately before the event, a balancing charge shall be made, and the amount on which it is made shall be an equal amount to the excess or, where the residue is nil, to those moneys.

(5) The provisions of section 78 of and Schedule 7 to the [1968 c. 3.] Capital Allowances Act 1968 (special provisions as to certain sales) apply for the purposes of this Schedule as they apply in relation to the sale of an industrial building and as if—

(a) any reference in those provisions to Part I of that Act included a reference to this Schedule; and

(b) for the words in sub-paragraph (2)(a) of paragraph 4 of that Schedule following " the case of" there were substituted the words " a qualifying dwelling-house, the residue of the expenditure immediately before the sale, computed in accordance with paragraph 7 of Schedule 12 to the Finance Act 1982 "; and

(c) for paragraphs (a) and (b) of sub-paragraph (3) of paragraph 4 of that Schedule there were substituted the words " both the seller and the buyer are at the time of the sale approved bodies, as denned in section 56(4) of the [1980 c. 51.] Housing Act 1980 ".

(6) For the purposes of this Schedule, any transfer of the relevant interest in a dwelling-house, otherwise than by way of sale, shall be treated as a sale of that interest for a price other than that which it would have fetched if sold on the open market; and if Schedule 7 to the [1968 c. 3.] Capital Allowances Act 1968 would not, apart from this sub-paragraph have effect in relation to a transfer treated as a sale by virtue of this sub-paragraph, that Schedule shall have effect in relation to it as if it were a sale falling within paragraph 1(1)(a) of that Schedule.

(7) Notwithstanding anything in the preceding provisions of this paragraph (or in paragraph 5 below), in no case shall the amount on which a balancing charge is made on any person in respect of any expenditure on the construction of a dwelling-house comprised in a building exceed the amount of the initial allowance, if any, made to him in respect of the expenditure appropriate to that dwelling-house together with the amount of any writing-down allowances made to him in respect of that expenditure for chargeable periods which end on or before the date of the event giving rise to the charge or of which the basis periods ends on or before that date.

5 (1) If, in a case where paragraph 4(1) above applies, a dwelling-house which had been a qualifying dwelling-house was not, for any part of the relevant period, such a dwelling-house, the provisions of this paragraph shall have effect instead of sub-paragraphs (3) and (4) of paragraph 4 above.

(2) Subject to sub-paragraph (4) below, where the sale, insurance, salvage or compensation moneys are not less than the capital expenditure appropriate to the dwelling-house, a balancing charge shall be made and the amount on which it is made shall be an amount equal to the allowances given.

(3) Subject to sub-paragraph (4) below, where there are no sale, insurance, salvage or compensation moneys or where those moneys are less than the capital expenditure appropriate to the dwelling-house, then—

(a) if the adjusted net cost of the dwelling-house exceeds the allowances given, a balancing allowance shall be made and the amount thereof shall be an amount equal to the excess ;

(b) if the adjusted net cost of the dwelling-house is less than the allowances given, a balancing charge shall be made and the amount on which it is made shall be an amount equal to the shortfall.

(4) No balancing charge or allowance shall be made under this paragraph on the occasion of a sale if, by virtue of paragraph 4 of Schedule 7 to the Capital Allowances Act 1968, as applied by paragraph 4(5) above, the dwelling-house is treated as having been sold for a sum equal to the residue of the expenditure before sale.

(5) In this paragraph—

• " the relevant period " means the period beginning at the time when the dwelling-house was first used for any purpose and ending with the event giving rise to the balancing allowance or balancing charge, except that where there has been a sale of the dwelling-house after that time and before that event the relevant period shall begin on the day following that sale or, if there has been more than one such sale, the last such sale ;

• " the capital expenditure " means—

  (a)

  where paragraph (b) of this definition does not apply, the capital expenditure incurred (or by virtue of paragraph 8 below deemed to have been incurred) on the construction of the dwelling-house ;

  (b)

  where the person to or on whom the balancing allowance or balancing charge falls to be made is not the person who incurred (or is deemed to have incurred) that expenditure the residue of that expenditure at the beginning of the relevant period, together (in either case) with any amount to be added to the residue of that expenditure by virtue of paragraph 7(9) below;

• " the allowances given" means the allowance referred to in paragraph 4(7) above ;

• " the adjusted net cost " means—

  (a)

  where there are no sale, insurance, salvage or compensation moneys, the capital expenditure appropriate to the dwelling-house ; and

  (b)

  where those moneys are less than that expenditure, the amount by which they are less,

  reduced (in either case) in the proportion that the part or the aggregate of the parts, of the relevant period for which the building is a qualifying dwelling-house bears to the whole of that period.

6 (1) If a dwelling-houses ceases to be a qualifying dwelling-house otherwise than by reason of a sale or transfer of the relevant interest in it, that relevant interest shall be treated for the purposes of this Schedule as having been sold, at the time the dwelling-house ceases to be a qualifying dwelling-house, for the price which it would have fetched if sold in the open market.

(2) For the purposes of this Schedule, a dwelling-house shall not be regarded as ceasing altogether to be used by reason that it falls temporarily out of use, and where, immediately before any period of temporary disuse, it is a qualifying dwelling-house, it shall be regarded as continuing to be a qualifying dwelling-house during the period of temporary disuse.

Writing off of expenditure and meaning of " residue of expenditure "

7 (1) Any expenditure appropriate to a qualifying dwelling-house shall be treated for the purposes of this Schedule as written off to the extent and as at the times specified below, and the references in this Schedule to the residue of any such expenditure shall be construed accordingly.

(2) Where an initial allowance is made in respect of a qualifying dwelling-house, the amount of that allowance shall be treated as written off as at the time when the qualifying dwelling-house is first used.

(3) Where, by reason of the whole or part of a building being at any time a qualifying dwelling-house, a writing-down allowance is made for any chargeable period in respect of the expenditure, the amount of that allowance shall, subject to sub-paragraph (4) below, be treated as written off as at that time.

(4) Where, at a time which is material for the purposes of sub-paragraph (3) above, an event occurs which gives rise or may give rise to a balancing allowance or balancing charge, the amount directed to be treated as written off by that sub-paragraph as at that time shall be taken into account in computing the residue of that expenditure immediately before that event for the purpose of determining whether any and if so what balancing allowance or balancing charge is to be made.

(5) If, for any period or periods between the time when the whole or part of a building was first used for any purpose and the time at which the residue of the expenditure falls to be ascertained, the building or part, as the case may be, has not been a qualifying dwelling-house, there shall in ascertaining that residue be treated as having been previously written off in respect of the said period or periods amounts equal to writing-down allowances made for chargeable periods of a total length equal thereto at such rate or rates as would have been appropriate having regard to any sale on which paragraph 2(3) above operated.

(6) Where, on the occasion of a sale, a balancing allowance is made in respect of the expenditure, there shall be treated as written off as at the time of the sale the amount by which the residue of the expenditure before the sale exceeds the net proceeds of the sale.

(7) Where, on the occasion of a sale, a balancing charge is made in respect of the expenditure, the residue of the expenditure shall be deemed for the purposes of this Schedule to be increased as at the time of the sale by the amount on which the charge is made.

(8) Where, on the occasion of a sale, a balancing charge is made under paragraph 5(3)(b) above in respect of the expenditure and, apart from this sub-paragraph, the residue of the expenditure immediately after the sale would by virtue of sub-paragraph (7) above be deemed to be greater than the net proceeds of the sale, the residue immediately after the sale shall be deemed for the purposes of this Schedule to be equal to the net proceeds.

(9) Where a dwelling-house is demolished, and the demolition gives rise, or might give rise, to a balancing allowance or charge under this Schedule to or on the person incurring the cost of demolition, the net cost to him of the demolition (that is to say the excess, if any, of the cost of the demolition over any moneys received for the remains of the property) shall be added for the purposes of this Schedule to the residue, immediately before the demolition, of the expenditure appropriate to the dwelling-house; and if this sub-paragraph applies to the net cost to a person of the demolition of any property, the cost or net cost shall not be treated, for the purpose of this Schedule, as expenditure incurred in respect of any other property by which that property is replaced.

Buildings bought unused

8 (1) Subject to sub-paragraph (2) below, where expenditure is incurred on the construction of such a building as is referred to in paragraph 1(1) above and the relevant interest in that building is sold before any of the dwelling-houses comprised in it are used.—

(a) the expenditure actually incurred on the construction of the building shall be left out of account for the purposes of the preceding provisions of this Schedule ; but

(b) the person who buys that interest shall be deemed for those purposes to have incurred, on the date when the purchase price becomes payable, expenditure on the construction of the building equal to the expenditure actually incurred or to the net price paid by him for that interest, whichever is the less.

(2) Where the relevant interest in such a building as is referred to in paragraph 1(1) above is sold more than once before any of the dwelling-houses comprised in it is used, the provisions of sub-paragraph (1)(b) above shall have effect only in relation to the last of those sales.

(3) Where the expenditure incurred on the construction of such a building as is referred to in paragraph 1(1) above was incurred by a person carrying on a trade which consists, as to the whole or any part thereof, in the construction of buildings with a view to their sale, and, before any of the dwelling-houses comprised in it is used, he sells the relevant interest in the building in the course of that trade, or, as the case may be, of that part of that trade, paragraph (b) of sub-paragraph (1) above shall have effect subject to the following modifications—

(a) if that sale is the only sale of the relevant interest before any of the dwelling-houses comprised in the building is used that paragraph shall have effect as if the words " the expenditure actually incurred or to " and the words " whichever is the less " were omitted, and

(b) in any other case, that paragraph shall have effect as if the reference to the expenditure actually incurred on the construction of the building were a reference to the price paid on that sale.

Manner of making allowances and charges

9 (1) Any allowance under this Schedule shall be made to a person by way of discharge or repayment of tax and shall be available primarily against the following income, that is to say—

(a) income taxed under Schedule A in respect of any premises which at any time in the chargeable period consist of a qualifying dwelling-house ; or

(b) income which is subject of a balancing charge under this Schedule.

(2) Effect shall be given to a balancing charge to be made on a person—

(a) if it is a charge to income tax, by making the charge under Case VI of Schedule D,

(b) if it is a charge to corporation tax, by treating the amount on which the charge is to be made as income of the description in sub-paragraph (1)(a) above.

Expenditure on repair of buildings

10 This Schedule shall have effect in relation to capital expenditure incurred by a person on repairs to any part of a building as if it were capital expenditure incurred by him in the construction for the first time of that part of the building.

Exclusion of double allowances

11 No allowance shall be made under this Schedule in respect of any expenditure on a building or in respect of a dwelling-house if for the same or any other chargeable period an allowance is or can be made under any provisions of Chapter V of Part I of the [1968 c. 3.] Capital Allowances Act 1968 (agricultural land or buildings) in respect of that expenditure or that dwelling-house.

Holding over by lessee etc.

12 (1) Where the relevant interest in relation to the capital expenditure incurred on the construction of a building is an interest under a lease, this Schedule shall have effect subject to the following provisions of this paragraph, and in those provisions—

(a) except in sub-paragraph (5), any reference to a lessor or lessee is a reference to the lessor or lessee under that lease ; and

(b) in sub-paragraph (5) the reference to the first lease is a reference to that lease.

(2) Where, with the consent of the lessor, a lessee of any building remains in possession thereof after the termination of the lease without a new lease being granted to him, that lease shall be deemed for the purposes of this Schedule to continue so long as he remains in possession as aforesaid.

(3) Where, on the termination of a lease, a new lease is granted to the lessee in pursuance of an option available to him under the terms of the first lease, the provisions of this Schedule shall have effect as if the second lease were a continuation of the first lease.

(4) Where, on the termination of a lease, the lessor pays any sum to the lessee in respect of a building comprised in the lease, the provisions of this Schedule shall have effect as if the lease had come to an end by reason of the surrender thereof in consideration of the payment.

(5) Where, on the termination of a lease, another lease in granted to a different lessee and, in connection with the transaction, that lessee pays a sum to the person who was the lessee under the first lease, the provisions of this Schedule shall have effect as if both leases were the same lease and there had been an assignment thereof by the lessee under the first lease to the lessee under the second lease in consideration of the payment.

Meaning of " the relevant interest"

13 (1) Subject to the provisions of this paragraph, in this Schedule " the relevant interest" means.—

(a) in relation to any expenditure incurred on the construction of a building, the interest in that building to which the person who incurred the expenditure was entitled when he incurred it; and

(b) in relation to a dwelling-house comprised in such a building as is referred to in paragraph 1(1) above, that interest, to the extent that it subsists in the dwelling-house, which is the relevant interest in relation to the capital expenditure incurred on the construction of that building.

(2) Where, when it incurs expenditure on the construction of a building, a body is entitled to two or more interests in the building and one of those interests is an interest which is reversionary on all the others, that interest shall be the relevant interest for the purposes of this Schedule.

(3) An interest shall not cease to be the relevant interest for the purposes of this Schedule by reason of the creation of any lease or other interest to which that interest is subject, and where the relevant interest is a leasehold interest and is extinguished by reason of the surrender thereof or on the body entitled thereto acquiring the interest which is reversionary on it, the interest into which that leasehold interest merges shall thereupon become the relevant interest.

Application of provisions of Capital Allowances Act 1968

14 The following provisions of the [1968 c. 3.] Capital Allowances Act 1968, namely—

• section 71 to 74 (income tax and corporation tax allowances and charges),

• section 76 (companies not resident in the United Kingdom), subsections (1) to (3) of section 77 (apportionment of consideration etc.),

• section 81 (procedure on apportionments),

• subsections (1) and (3) of section 82 (interpretation of certain references to expenditure etc.), section 84 (subsidies),

• section 86 (meaning of " sale, insurance, salvage or compensation moneys "), and

• subsections (1), (3) and (6) of section 87 (interpretation of Part I).

shall apply for the purposes of this Schedule as they apply for the purposes of Part I of that Act and, accordingly, any reference in those provisions to Part I of that Act shall include a reference to this Schedule.

Interpretation

15 (1) In this Schedule—

• " approved body " has the meaning given by section 56(4) of the [1980 c. 51.] Housing Act 1980 ;

• " building", except where the context otherwise requires, includes part of a building ;

• " dwelling-house " except where the context otherwise requires, has the same meaning as in the [1977 c. 42.] Rent Act 1977 ;

• " expenditure appropriate to a dwelling-house" has the meaning given by paragraph 1(4) above ; and

• " qualifying dwelling-house " has the meaning given by paragraph 3 above.

(2) References in this Schedule to expenditure incurred on the construction of a building do not include any expenditure incurred on the acquisition of, or of rights in or over any land.

(3) A person who has incurred expenditure on the construction of a building shall be deemed, for the purposes of any provision of this Schedule referring to his interest therein at the time when the expenditure was incurred, to have had the same interest therein as if the construction thereof had been completed at that time.

(4) Without prejudice to any of the other provisions of this Schedule relating to the apportionment of sale, insurance, salvage or compensation moneys, the sum paid on the sale of the relevant interest in a building or structure, or any other sale, insurance, salvage or compensation moneys payable in respect of any building or structure, shall, for the purposes of this Schedule, be deemed to be reduced by an amount equal to so much thereof, as, on a just apportionment, is attributable to assets representing expenditure other than expenditure in respect of which an allowance can be made under this Schedule.