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Disposal of industrial building
Balancing adjustments have to be made if any of the following occurs:
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the relevant interest in
the building is sold; or
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that interest,
being a leasehold interest, comes to an end; or
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the building is
demolished, destroyed, or ceases altogether to be used.
The
balancing adjustment is to adjust the total allowances to "the cost of
construction less the disposal proceeds". If the total allowances granted is less than
"the cost of
construction less the disposal proceeds", the adjustment (that is the difference) will be a balancing
allowance --- a deduction from assessable profits. Otherwise, the
adjustment will be a balancing charge --- a claw back of the excessive allowances
granted.
In
practice, the
balancing adjustment is usually computed by comparing the residue of
expenditure before sale with the sales price for the building.
Residue
of expenditure is defined in Section 40 as the original cost of the
building as reduced by any initial or annual allowance, or the case of
subsequent owner: reduced by balance allowances or increased by balancing
charges. A notional annual allowance of 4% will have to be made for those
years in which the building is not used as an industrial building.
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No
balancing charge or allowance is to be made unless the building is an
industrial building at the time of the event.
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No
balancing allowance is granted if the building is demolished for purposes
unconnected with the trade for which the building is used: for example,
where the building is demolished for a property re-development.
An illustration showing computation of
balancing adjustments |
