Capital Allowances Act 2001

Chapter 20 Supplementary provisions

Partnerships and successions

263 Qualifying activities carried on in partnership

(1) This section applies if—

(a) a qualifying activity has been set up and is at any time carried on in partnership,

(b) there has been a change in the persons engaged in carrying on the qualifying activity, and

(c) the change is not treated as a permanent discontinuance of the qualifying activity under section 113(1) of ICTA (changes in persons carrying on a trade etc.).

(2) In this section—

• “the present partners” means the person or persons for the time being carrying on the qualifying activity,

• “the partners at the time of the event” means the person or persons carrying on the qualifying activity at the time of the event in question,

• “predecessors”—

  (a)

  in relation to the present partners, means their predecessors in carrying on the qualifying activity, and

  (b)

  in relation to the partners at the time of the event, means their predecessors in carrying on the qualifying activity, and

• “qualifying activity”—

  (a)

  does not include an employment or office, but

  (b)

  includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

(3) Any first-year allowance or writing-down allowance under this Part is to be made to the present partners.

(4) The amount of any allowance arising under subsection (3) is to be calculated as if—

(a) the present partners had at all times been carrying on the qualifying activity, and

(b) everything done to or by their predecessors in carrying on the qualifying activity had been done to or by the present partners.

(5) If any event occurs which gives rise or may give rise to a balancing allowance or a balancing charge under this Part, the allowance or charge is to be made to or on the partners at the time of the event.

(6) The amount of any allowance or charge arising under subsection (5) is to be calculated as if—

(a) the partners at the time of the event had at all times been carrying on the qualifying activity, and

(b) everything done to or by their predecessors in carrying on the qualifying activity had been done to or by the partners at the time of the event.

264 Partnership using property of a partner

(1) Subsection (2) applies if—

(a) a qualifying activity is carried on in partnership,

(b) plant or machinery is used for the purposes of the qualifying activity, and

(c) the plant or machinery is owned by one or more of the partners but is not partnership property.

(2) The same allowances, deductions and charges are to be made under this Part in respect of the plant or machinery as would fall to be made if—

(a) the plant or machinery had at all material times been owned by all the partners and been partnership property, and

(b) everything done by or to any of the partners in relation to that plant or machinery had been done by or to all the partners.

(3) The disposal value of plant or machinery is not required to be brought into account if—

(a) the plant or machinery is used for the purposes of a qualifying activity carried on in partnership,

(b) a sale or gift of the plant or machinery is made by one or more of the partners to one or more of the partners, and

(c) the plant or machinery continues to be used after the sale or gift for the purposes of the qualifying activity.

(4) The references in this section to use for the purposes of a qualifying activity do not include use—

(a) as a result of a letting by the partner or partners in question to the partnership, or

(b) in consideration of the making to the partner or partners in question of any payment which may be deducted in calculating the profits of the qualifying activity.

265 Successions: general

(1) This section applies if—

(a) a person (“the successor”) succeeds to a qualifying activity which until that time was carried on by another person (“the predecessor”), and

(b) the qualifying activity is treated as discontinued under section 113(1) or 337(1) of ICTA (changes in persons carrying on a trade, and special rules for corporation tax).

(2) Relevant property is to be treated for the purposes of this Part as if—

(a) it had been sold to the successor when the succession takes place, and

(b) the net proceeds of the sale were the market value of the property.

(3) “Relevant property” means any property which—

(a) immediately before the succession, was owned by the predecessor and was either in use or provided and available for use for the purposes of the discontinued qualifying activity, and

(b) immediately after the succession, and without being sold, is either in use or provided and available for use for the purposes of the new qualifying activity.

(4) No entitlement to a first-year allowance arises under this section.

(5) In this section “qualifying activity”—

(a) does not include an employment or office, but

(b) includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

266 Election where predecessor and successor are connected persons

(1) This section applies if a person (“the successor”) succeeds to a qualifying activity which was until that time carried on by another person (“the predecessor”) and—

(a) the two persons are connected with each other,

(b) each of them is within the charge to tax on the profits of the qualifying activity, and

(c) the successor is not a dual resident investing company.

(2) If this section applies, the predecessor and the successor may jointly elect for the provisions of section 267 to have effect.

(3) The election may be made whether or not any plant or machinery has actually been sold or transferred.

(4) The election must be made by notice to the Inland Revenue within 2 years after the date on which the succession takes effect.

(5) For the purposes of this section, the predecessor and the successor are connected with each other if any of the following conditions is met—

(a) they would be treated as connected persons under section 839 of ICTA;

(b) one of them is a partnership and the other has the right to a share in that partnership;

(c) one of them is a body corporate and the other has control over that body;

(d) both of them are partnerships and another person has the right to a share in both of them;

(e) both of them are bodies corporate, or one of them is a partnership and the other is a body corporate, and (in either case) another person has control over both of them.

(6) In subsection (5) any reference to a right to a share in a partnership is to be read as a reference to a right to a share of the assets or income of the partnership.

(7) Sections 104, 108 and 265 (disposal value of long-life assets, effect of disposal to connected person on overseas leasing pool and general provisions about successions) do not apply if an election is made under this section.

(8) This section does not apply if section 561 applies (transfer of UK trade to a company in another member State).

267 Effect of election

(1) If an election is made under section 266, the following provisions have effect.

(2) For the purposes of making allowances and charges under this Part, relevant plant or machinery is treated as sold by the predecessor to the successor—

(a) when the succession takes place, and

(b) at a price which gives rise to neither a balancing allowance nor a balancing charge.

(3) “Relevant plant or machinery” means any plant or machinery which—

(a) immediately before the succession, was owned by the predecessor, and was either in use or provided and available for use for the purposes of the qualifying activity, and

(b) immediately after the succession, is owned by the successor, and is either in use or provided and available for use for the purposes of the qualifying activity.

(4) Allowances and charges are to be made under this Part to or on the successor as if everything done to or by the predecessor had been done to or by the successor.

(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to the election.

268 Successions by beneficiaries

(1) This section applies if—

(a) a person succeeds to a qualifying activity as a beneficiary under the will or on the intestacy of a deceased person who carried on the qualifying activity,

(b) the qualifying activity is treated as discontinued under section 113(1) of ICTA (changes in persons carrying on a trade etc.), and

(c) the beneficiary elects by notice to the Inland Revenue for this section to apply.

(2) In relation to the succession and any previous succession occurring on or after the death of the deceased, relevant plant or machinery is treated as if it had been sold to the beneficiary when the succession takes place.

(3) The net proceeds of the sale are treated as being the lesser of—

(a) the market value of the plant or machinery, and

(b) the unrelieved qualifying expenditure which would have been taken into account in calculating the amount of a balancing allowance for the appropriate chargeable period if the disposal value of the plant or machinery had been nil.

• “Appropriate chargeable period” means the chargeable period in which the deceased person’s qualifying activity was permanently discontinued.

(4) “Relevant plant or machinery” means plant or machinery which—

(a) was previously owned by the deceased,

(b) passes to the beneficiary with the qualifying activity, and

(c) is either used or provided and available for use by the beneficiary for the purposes of the qualifying activity.

(5) Subsections (6) and (7) apply if the beneficiary is required to bring a disposal value into account in respect of relevant plant or machinery.

(6) The provisions limiting the amount of the disposal value of property, that is—

(a) section 62 (limit on disposal value: general), and

(b) section 239 (limit on disposal value where additional VAT rebate),

apply in relation to the beneficiary to limit the disposal value by reference to expenditure incurred by the deceased or additional VAT rebates made to the deceased.

(7) Section 73 (limit on disposal value: software and rights to software) applies as if the previous disposal values to be taken into account in determining whether the limit under those provisions is exceeded were those of the deceased.

(8) In this section “qualifying activity”—

(a) does not include an employment or office, but

(b) includes any other activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Miscellaneous

269 Use of plant or machinery for business entertainment

(1) If—

(a) a person carrying on a qualifying activity, or

(b) an employee of that person,

provides business entertainment in connection with that activity, the use of plant or machinery for providing the entertainment is to be treated as use for purposes other than those of that activity.

(2) For the purposes of this section—

(a) “entertainment” includes hospitality of any kind, and

(b) the use of an asset for providing entertainment includes the use of an asset for providing anything incidental to the entertainment.

(3) “Business entertainment” does not include anything provided by a person for employees unless its provision for them is incidental to its provision for others.

(4) “Business entertainment” does not include the use of plant or machinery for the provision of anything by a person if—

(a) it is a function of that person’s qualifying activity to provide it, and

(b) it is provided by that person in the ordinary course of that qualifying activity—

(i) for payment, or

(ii) free of charge with the object of advertising to the public generally.

(5) For the purposes of this section—

(a) directors of a company, or

(b) persons engaged in the management of a company,

are to be regarded as employed by the company.

270 Shares in plant or machinery

(1) This Part applies in relation to a share in plant or machinery as it applies (under section 571) in relation to a part of plant or machinery.

(2) For the purposes of this Part, a share in plant or machinery is treated as used for the purposes of a qualifying activity so long as, and only so long as, the plant or machinery is used for the purposes of the qualifying activity.