CA39600 - IBA: Miscellaneous: Arrangements having an artificial effect on pricing: Outline

CAA01/S357

You may have a case where a person buys a building and the price is more than the market value of the building itself. For example, a lease may be created at an artificially high rent before the building is sold. The price paid for the relevant interest is higher than it would have been if the lease had not existed. An example is the case of Regina v CIR ex parte Matrix Securities Ltd. 66TC587.

There is anti-avoidance legislation to deal with cases like that. It limits the expenditure qualifying for allowances in cases where allowances are given by reference to the capital sum paid for the relevant interest and the price paid has been increased by arrangements which have an artificial effect on pricing. It restricts the qualifying expenditure to an amount that reflects open market conditions. Excess expenditure reflecting the effect of the arrangements does not qualify for IBA.