CA37450 - IBA: Enterprise zones: Buildings bought unused

CAA01/S302

You may get a claim for enterprise zone allowances from a person who buys an unused building in an enterprise zone. If you do you should check the date on which the construction expenditure was incurred because it is the date on which the construction expenditure was incurred and not the date of purchase that matters in deciding whether enterprise zone allowances are available.

A person who buys an unused building in an enterprise zone can claim enterprise zone allowance if all or part of the construction expenditure was incurred:

• during the life of the zone, or
• within 10 years after the life of the zone has expired, under a contract entered into during the life of the zone.

If part of the construction expenditure was incurred during the life of the zone (or in the following 10 years but under a contract entered into during the life of the zone) and part was not, split the buyer's qualifying expenditure into a qualifying enterprise zone element and a non-qualifying enterprise zone element. Give enterprise zone allowances on the qualifying enterprise zone element and deal with the non-qualifying enterprise zone element under the normal IBA rules.

The buyer's qualifying expenditure may be the original construction expenditure or the purchase price.

If the qualifying expenditure is the original construction expenditure the enterprise zone element is the part of the construction expenditure that is enterprise zone expenditure.

If the qualifying expenditure is the purchase price the enterprise zone element of the qualifying expenditure is:

Example Charles builds a building in an enterprise zone for £1million excluding the cost of the land. £750,000 of that expenditure was incurred during the life of the zone. This means that £750,000 of the construction expenditure is enterprise zone construction expenditure. Charles sells the building to Frank for £1.2 million before it is brought into use.

If Charles is a property developer, the qualifying enterprise zone element of Frank's qualifying expenditure is £900,000 = £1.2 million x £750,000 / £1million. In any other case Frank's expenditure qualifying for enterprise zone allowances is £750,000 because that was the part of Charles's construction expenditure that was enterprise zone expenditure.