CA41100 - ABA: Writing down allowances

CAA01/S372 - S379

Writing down allowances on an agricultural building are given during a writing down period of 25 years. They may not be given after the end of that period even if there is still some expenditure which has not been written off. The person who has the relevant interest in the related agricultural land may claim the WDA.

The annual rate of writing down allowance is 4% of the qualifying expenditure for the person who constructed the building or bought it unused. If the chargeable period is more or less than a year, the writing down allowance is proportionately increased or reduced. For example, if the chargeable period is 9 months the writing down allowance is 3% (= 4% x 9/12) of the qualifying expenditure.

The writing down allowance need not be claimed or a reduced amount may be claimed. If the allowance is not claimed in full or it is not claimed and there is no subsequent transfer of the relevant interest the qualifying expenditure will never be fully written off because ABA can only be made during the 25-year writing down period.

Where the person who incurred the construction expenditure claims ABA, the writing down period is the 25-year period that begins on the first day of the chargeable period in which the construction expenditure was incurred.

Where a person who bought the agricultural building unused claims ABA the writing down period is the 25-year period that begins on the first day of the chargeable period in which the person bought the building.

Once the building has been brought into use for the purposes of husbandry ABA continues until the end of the writing down period whatever the building is used for in later years.

Example John is a farmer. He builds a cottage for his cowman. The cowman moves into the cottage so the first use is for the purposes of husbandry and ABA is due. The cowman decides to move into the village and John begins to use the cottage for holiday lettings. The cottage qualifies for ABA while John is using it for holiday lettings because its first use was for the purposes of husbandry.

If writing down allowances are made before the agricultural building is brought into use, they are withdrawn if:

• The person who claimed them sells the relevant interest before the building is brought into use, or
• The first use of the building is not for the purposes of husbandry.

The annual writing down allowance for a chargeable period after one in which there has been a balancing event CA41200 is calculated like this. Work out the length of the period from the balancing event to the end of the writing down period. Divide the residue of qualifying expenditure CA41300 immediately after the balancing event by the length of the period to get the annual writing down allowance.

Example Paul is a farmer. He builds a cottage for £100,000 and claims ABA. Paul's annual WDA is £4,000 (= £100,000 / 25). He claims WDA each year. After 15 years when the residue of expenditure is £40,000 he sells the farm to Harry. The part of the sale price that relates to the cottage is £30,000. Paul and Harry make an election to treat the sale as a balancing event. After the balancing event the residue of expenditure in relation to the cottage is £30,000. The period from the balancing event to the end of the writing down period is 10 years. Harry's annual writing down allowance is £3,000 (= £30,000 / 10).

A writing down allowance may not exceed the residue of qualifying expenditure CA41300 at the beginning of the chargeable period. If the residue at the beginning of the last chargeable period in the 25 year writing down period is more than the writing down allowance for that period calculate what the residue would have been if writing down allowances had been made for all previous chargeable periods. If that residue is more than the writing down allowance give an increased writing down allowance for the last chargeable period to use up the residue.