Capital allowances on plant and machinery – anti avoidance
A new piece of anti-avoidance legislation has been proposed to prevent tax avoidance through the transfer of an entitlement to benefit from capital allowances on plant or machinery.
The proposed legislation will take effect from 21 July 2009 although it has yet to be drafted and will then be included in the 2010 Finance Bill.
The objective of the change is to prevent tax avoidance through the transfer of an entitlement to benefit from capital allowances on plant or machinery, used for the purpose of a trade, where the tax written down value of the plant or machinery exceeds its balance sheet value. These are sometimes referred to as ‘latent capital allowances’.
The new rules will apply where the transfer of the capital allowances follows a change in ownership where the purchasing group gains an entitlement to benefit from the latent capital allowances available to the company which is purchased. This will usually apply where there is a change in ownership or profit-shares of a consortium company, or partnership involving companies, as part of arrangements where one of the main purposes is to transfer the entitlement to benefit from the latent capital allowances.
HMRC are expected to publish draft legislation shortly.