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Capital Allowances Act 2001

Section 62: General limit on amount of disposal value

311.This section is based on section 26(2) and (3) of CAA 1990 with a minor change. It puts a cap on disposal values.

312.Subsection (1) is the general rule. It is based on section 26(2) of CAA 1990. The disposal value for any plant or machinery is limited to the qualifying expenditure incurred on it. This is part of the underlying theme of this Part: plant and machinery allowances are given in total for the actual depreciation suffered on the asset. Without this provision someone who (exceptionally) sells plant or machinery for more than they paid for it would end up with an overall charge.

313.Subsections (2) and (3) modify the general rule concerning plant or machinery acquired from a connected person. They are based on section 26(3) of CAA 1990. They limit the disposal value to the greatest amount of qualifying expenditure incurred by any of those connected persons. This rule goes hand in hand with the provisions in section 61 which allow a person to:

  • sell at less than market value to a connected person who can claim capital allowances; and

  • bring only the sale proceeds into account as a disposal value (rather than the open market value).

314.Without subsections (2) and (3) people could avoid balancing charges, if allowances exceeded the actual depreciation, by selling to a connected person who then sells the plant or machinery.

315.The rules are expressed in this section in terms of qualifying expenditure. Section 26(2) and (3) of CAA 1990 gives the rule in terms of capital expenditure. This is a change which is in principle generally favourable to taxpayers. It leaves out of account capital expenditure incurred by a connected person who is not carrying on a qualifying activity. It can in theory have a knock-on effect which is against a taxpayer’s interests if the disposal comes within Chapter 17. This is because the benefit for the seller of a lower disposal value may then result in a lower amount of qualifying expenditure for the buyer. See Change 11 in Annex 1.

316.Section 575 defines a “connected person”.

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