Sometimes the parties to a sale can make an election to have the sale treated as taking place for an alternative amount. They can do so if:
These are the alternative amounts:
IBA - the residue of qualifying expenditure immediately
before the sale.
MEA - the unrelieved qualifying expenditure immediately
before the sale.
RDA - if an RDA has been given, nil; in any other case, the
qualifying expenditure.
ATA - the residue of qualifying expenditure immediately
before the sale.
An election may not be made in an ABA case.
Example 1 In the example at CA13100 Rita and Chris
make an election to have the sale treated as being for an
alternative amount. For an industrial building the alternative
amount is the residue of qualifying expenditure before sale. Rita
and Chris's allowances are calculated as if Rita had sold the
building to Chris for £90,000. Rita has no balancing
allowances or balancing charge. Chris's allowances are based on a
residue of qualifying expenditure after sale of £90,000.
If there is no alternative amount given the election has no
effect because there is nothing to substitute for market value.
The election must be made by notice to the Inland Revenue not
later than two years after the sale. It must be made by all the
parties to the sale.
Once an election has been made all assessments and
adjustments of assessments needed to give it effect should be made.
Where the control test CA13100 is met, the person(s) who have
control when the election is made should sign the election. An
election signed by a person who had control at the time of sale but
who no longer has control when the election is made is not valid.
For example, an election signed by a former director after ceasing
to be a director is not valid, even if that person was a director
at the time of the sale.
An election may
not be made if:
The first condition means that an election cannot be made where
balancing charges cannot be made on the buyer, for example, where
the buyer is a connected exempt pension fund or the buyer is a non
resident who is outside the UK tax net.
Once an election has been made any balancing charges that
would have been made on the seller if there had been no change of
ownership are made on the buyer.
Example 2 Eric controls The Dominoes Ltd. Eric
owns an industrial building that cost £1million. When the
residue of qualifying expenditure is £600,000 and the market
value is £900,000 he transfers it to The Dominoes Ltd. The
transfer is treated as taking place at market value, £900,000
and so there is a balancing charge of £300,000 (= transfer
value, £900,000 less residue, £600,000). Eric does not
want to be taxed on the balancing charge so he and The Dominoes
Ltd. make an election under CAA01/S569. The transfer is then
treated as taking place at £600,000, the residue of qualifying
expenditure. A year later when the residue of qualifying
expenditure is £560,000 The Dominoes Ltd. sells the building
for £950,000. The Dominoes Ltd.'s balancing charge is
£390,000, not £40,000 because that would have been Eric's
balancing charge if there had been no change of ownership.
In the IBA and the ATA case, if the building has not been an
industrial building
CA35100 or a qualifying dwelling house
CA87000 throughout, there is no balancing
adjustment where the election treats the sale price as equal to the
residue of qualifying expenditure immediately before sale.
