CA37740 - IBA: Enterprise zones: Realisation of capital value: Attributable to the subordinate interest
Capital value is attributable to the subordinate interest if it is paid:
- in connection with the grant of the subordinate interest;
- in lieu of any rent payable by the person entitled to the subordinate interest;
- in consideration of the assignment of any rent payable by the person entitled to the subordinate interest;
- in consideration of the surrender of the subordinate interest; or
- in consideration of the variation or waiver of any terms on which the subordinate interest was granted.
Example Graham buys the relevant interest in an
unused office block in an enterprise zone for £1 million in
2005 and claims 100% initial allowance. If he grants a lease to
Andrew for a premium of £400,000 two years later the
£400,000 is capital value attributable to the lease granted to
Andrew.
The residue of qualifying expenditure of expenditure when
Graham grants the lease to Andrew is nil because Graham has claimed
100% initial allowance. This means that there is a balancing charge
of £400,000. The limit on future balancing charges then
becomes £600,000 (= initial allowance of £1 million less
balancing charge assessed £400,000).
