CA40200 - ABA: Qualifying expenditure
CAA01/S369 & S371
Expenditure is qualifying expenditure and so qualifies for ABA if it satisfies these three conditions:
- the expenditure is capital expenditure incurred on constructing agricultural buildings;
- the expenditure is incurred for the purposes of husbandry on agricultural land; and
- the person who incurs the expenditure has an interest in that agricultural land which is capable of being the relevant interest CA41000.
Since land outside the UK is never agricultural land for ABA
purposes, buildings outside the UK cannot qualify for ABA. This
means that a person who owns a farm in France, for example, and
constructs a barn cannot claim ABA on it. However, if the profits
of the farm in France are assessable under Case I Sch D the farm
will satisfy the IBA definition of foreign plantation
CA32226. This means that agricultural
buildings constructed by a person who owns a farm abroad whose
profits are assessable under Case I Sch D can qualify for IBA.
The agricultural land in (b) is called the
related agricultural land.
Example Stephen owns a dairy farm and builds a new
milking parlour. The land occupied by the dairy farm is the related
agricultural land for the milking parlour.
The person who incurs expenditure on constructing an
agricultural building may have different interests in different
parts of the related agricultural land. In a case like that
apportion the expenditure on constructing the agricultural building
on a just and reasonable basis and look at each part separately.
Example Graham is a farmer. He owns 75% of the
land occupied by his farm and leases the other 25%. He incurs
capital expenditure on drainage works for the whole farm. The
expenditure is apportioned between the land he owns and the land he
rents. ABA is calculated on the 75% relating to the land he owns
and the 25% relating to the land he rents separately.
Do not give ABA on more than one-third of expenditure
incurred on constructing a farmhouse. This is to allow for the fact
that the farmhouse is also residential accommodation. If the
farmhouse is more luxurious than the average farmhouse give ABA on
a reasonable portion (but never more than one-third) of the
expenditure.
Example Graham builds a farmhouse which includes a
private cinema and a Jacuzzi. It is agreed that only 10% of the
farmhouse is used for farm business and so he gets ABA on 10% of
the cost.
Sometimes the one-third restriction acts against the farmer.
For example, if the farmhouse is used 50% for farm business it is
still only one-third of its construction expenditure that qualifies
for ABA.
A farmer may construct an agricultural building which is not
a farmhouse and which is to be used partly for purposes other than
the purposes of husbandry. In such a case you should make a just
and reasonable apportionment of the expenditure and give ABA on the
part that relates to use for the purposes of husbandry.
Example Neil is a farmer and a rock musician. He
builds a garage in which he keeps his farm vehicles and the band's
tour bus. No part of the garage is used exclusively for either the
farm vehicles or the bus. The expenditure on constructing the
garage is apportioned and ABA is given on the part representing the
use for storing the farm vehicles.
Expenditure on land, or on rights in or over land, does not
qualify for ABA.
Capital expenditure on constructing an agricultural building
includes:
- repairs expenditure which is not allowable as a revenue deduction;
- capital expenditure on improvements or reconstruction;
- demolition costs where the demolition is a preliminary to replacing a building unless the building demolished has been an industrial building and the demolition costs have been added to the residue of expenditure for IBA purposes; and
- architect's fees.
Where stone or gravel from a quarry or gravel pit on an agricultural estate is used in the construction of an agricultural building, give ABA on the proportion of the working costs of the quarry or pit attributable to the stone or gravel used in the construction of the building. Do not do this if those costs are allowable as a Sch A deduction. If you treat some of the costs as ABA qualifying expenditure make a corresponding credit in computing the profits of the quarry or gravel pit.
