This is how you calculate a balancing adjustment.
If the building has always been an industrial building during
the time when the person owned it, compare the proceeds from the
balancing event with the residue of qualifying expenditure
immediately before that event. If the proceeds are more than the
residue of qualifying expenditure the difference is a
balancing charge restricted, if necessary, to the
allowances given. If the proceeds are less than the residue of
qualifying expenditure the difference is a
balancing allowance.
If the building was not an industrial building throughout the
time when the person owned it the balancing adjustment makes the
allowances given match the depreciation of the building while it
was an industrial building. This is how you calculate it. First of
all, these are definitions of the terms used.
The
starting expenditure is the qualifying expenditure
if the person constructed the building or bought it unused or the
residue of qualifying expenditure in any other case.
The
adjusted net cost is the depreciation suffered
while the building was an industrial building. It is calculated
using the formula below.
(S - P) x (I / R)
where:
S is the starting expenditure,
P is the amount of any proceeds from the balancing event,
I is the number of days in the relevant period of ownership
on which the building was an industrial building or used for
research and development, and
R is the number of days in the whole of the relevant period
of ownership.
Example Bob builds a recording studio on land that
he owns for £500,000 (S) in June 2000. He uses it as a
recording studio until the end of June 2005 and then uses the
building as a rehearsal room until he sells it in July 2009 to
Keith for £450,000 of which £40,000 relates to the land.
The proceeds in relation to the building are therefore
£410,000 (P). Bob owned the building for 9 years (R) and it
was an industrial building for 5 of them (I). The depreciation
suffered while Bob owned the building is £90,000 =
£500,000 - (£450,000 - £40,000) and the
adjusted net cost of the building, or the depreciation while it was
an industrial building, is £50,000 = £90,000 (S-P) x 5
years (I) / 9 years (R).
The
net allowances given are the sum of any initial
allowance + WDA + RDA made to the person less any balancing charges
made on that person. Any allowances made to a woman's husband
before the introduction of independent taxation on a building in
which she held the relevant interest are treated as having been
made to her.
Compare the proceeds from the balancing event with the
starting expenditure.
If the proceeds are more than the starting expenditure there
is a balancing charge equal to the net allowances given.
If the proceeds are less than the starting expenditure
compare the net allowances given with the adjusted net cost.
There is a balancing charge equal to the difference if the
net allowances given are more than the adjusted net cost.
There is a balancing allowance equal to the difference if the
net allowances given are less than the adjusted net cost.
