Where capital expenditure has been incurred on the construction
of a building and capital expenditure is incurred on acquiring the
relevant interest in that building before it is used the buyer is
treated as incurring qualifying expenditure. It is incurred when
the capital sum to buy the building becomes payable. The qualifying
expenditure is the lower of the capital construction expenditure
and the capital expenditure incurred by the purchaser. The buyer
may incur acquisition costs like legal fees, surveyors' fees and
stamp duty. In that case include them (but nothing else) in the
buyer's capital expenditure.
The buyer may pay a deposit and then the balance of the
purchase price on completion. If this happens you should treat the
buyer as incurring all of the qualifying expenditure on the
completion date.
Example David incurs capital expenditure on
constructing a building. He does not bring it into use and sells it
to Stephen. Stephen decides that it is not suitable for his
business and sells it, still unused, to Graham who pays a capital
sum to Stephen. The qualifying expenditure is the lower of David's
construction expenditure and the price Graham pays Stephen. The
price Stephen paid to David is ignored.
Do not treat a building as unused if it has been used for any
purpose. However, you should not treat occupation by a tenant for
fitting out by that tenant prior to the commencement of actual
production or other use as use. The fitting out process is merely
the completion of construction.
Example David builds a factory and leases it to
Stephen. If David lets Stephen occupy the factory to fit it out and
then sells the factory to Graham before Stephen has started to use
the factory for actual production the factory is unused at the time
of sale. Graham is treated as if he had bought an unused building.
If, however, David first gives a short lease to Neil to use
the factory building on a temporary basis for storage before David
leases it to Stephen who fits it out and sells it to Graham. The
factory is a used building when Graham buys it.
The expenditure on constructing a building may have been
incurred by a developer. A developer is a person who carries on a
trade that consists, in whole or in part, of the construction of
buildings with a view to their sale. If you have to decide if a
company is a developer the fact that it subcontracts the actual
construction work does not stop it being one. A trading company
will sub- contract work if it is economically sensible to do so.
The qualifying expenditure of a person who incurs capital
expenditure on acquiring the relevant interest in an unused
building from a developer is the price paid for the relevant
interest.
A building constructed by a property developer may change
hands several times before it is brought into use. If so the
qualifying expenditure is the lower of the price paid by the first
purchaser and the price paid by the final purchaser. Anything in
between is ignored.
Example Dave is a developer. He constructs a
building at a cost of £750,000 that he sells to Robin for
£1 million. Robin does not bring it into use but sells it to
George for £1,100,000. George finds that the building does not
have the planning permission needed for his intended use and so he
sells it unused to Tony for a capital sum of £950,000. Tony's
qualifying expenditure is £950,000, the lower of the price he
paid to George, £950,000, and £1 million, the price paid
by Robin to Dave. The price George paid to Robin is ignored and so
is Dave's construction cost.
