If the dwelling house has been a qualifying dwelling house for
the relevant period of ownership (see below) compare the proceeds
from the balancing event with the residue of qualifying expenditure
attributable to the dwelling house immediately before the balancing
event. If the residue is more than the proceeds the difference is a
balancing allowance. If the residue is less the difference is a
balancing charge.
If there have been periods during the relevant period of
ownership when the dwelling house was not a qualifying dwelling
house the position is as follows.
There is a balancing charge if the proceeds from the
balancing event equal or exceed the qualifying expenditure
attributable to the dwelling house (or the residue after the last
sale as the case may be).
If the proceeds from the balancing event are less than the
qualifying expenditure attributable to the dwelling house (or the
residue after the last sale as the case may be) calculate the
adjusted net cost. This is the depreciation suffered while the
building has been a qualifying dwelling house. This is how you
should do the calculation.
First you should calculate the relevant period of ownership.
It is the period that begins with:
and ends with the day on which the balancing event occurs.
Then you should calculate the adjusted net cost. Start with
the qualifying expenditure attributable to the dwelling house or
the residue after the last sale, as the case may be, and deduct the
proceeds from that. Then multiply that amount by the number of days
in the relevant period of ownership when the dwelling house was a
qualifying dwelling house and then divide by the number of days in
the relevant period of ownership. The result is the adjusted net
cost.
Example A dwelling house cost £30,000 to buy
unused in 1985. It was brought into use on 1 January 1986 but it
only became a qualifying dwelling house on 1 January 1988. It was a
qualifying dwelling house until it was sold, for £6,000, on 31
December 2001, that is for 14 years out of the 16 years of
ownership. The adjusted net cost is (£30,000 –
£6,000) = £24,000 x 14/16 = £21,000.
Once you have calculated the adjusted net cost compare it
with the allowances made. The allowances made are writing down
allowances and any initial allowance made.
There is a balancing adjustment equal to any difference
between the adjusted net cost and the allowances made. The
adjustment is a balancing allowance if the adjusted net cost
exceeds the allowances made. Otherwise the adjustment is a
balancing charge.
The legislation in CAA01/S570A applies to prevent the making
of a balancing allowance when the proceeds of the balancing event
are affected by a tax avoidance scheme
CA17000.
