What happens to the seller when an enterprise zone building is sold within two years of first use under section 303?

Under section 303 of the Capital Allowances Act 2001, the sale triggers a balancing adjustment for the seller under the industrial buildings allowance rules. After the sale, any residue of qualifying expenditure the seller might otherwise have carried forward is completely disregarded, ending the seller's entitlement to future allowances on the building.

How is the purchaser's qualifying expenditure calculated under section 303 when no developer is involved?

The purchaser's expenditure is split into two portions. First, L is determined as the lower of the purchase price and total construction cost. Z (enterprise zone portion) equals L multiplied by E divided by T, where E is construction expenditure within the time limit and T is total construction expenditure. N (non-enterprise zone portion) is L minus Z.

When is the purchaser's qualifying expenditure under section 303 treated as incurred?

Any qualifying expenditure arising under section 303 is treated as having been incurred at the point when the capital sum on the relevant sale became payable. This determines the chargeable period in which the purchaser can first claim capital allowances on the enterprise zone building acquisition.

What conditions must be met for section 303 of the Capital Allowances Act 2001 to apply?

Section 303 applies when construction expenditure on an enterprise zone building was only partly incurred within the enterprise zone time limit, the building has been used, and the relevant interest is sold within two years of the date the building was first used. The sale must be the first sale occurring within that two-year window.

Capital Allowances Act 2001 section 303

Purchase of building within 2 years of first use

Section 303 deals with the tax treatment when an enterprise zone building, where only part of the construction expenditure fell within the enterprise zone time limit, is sold within two years of first being used.

Where only part of the construction cost of an EZ building was incurred within the time limit and the building is sold within two years of first use, a balancing adjustment is triggered and any remaining qualifying expenditure of the seller is wiped out.
The purchaser is treated as having incurred fresh qualifying expenditure, split into a qualifying enterprise zone portion (Z) and a non-enterprise zone portion (N), and the building is treated as if it had never been used before the sale date.
Unless a developer is involved, Z and N are calculated by reference to the lower of the purchase price and the original construction cost, apportioned according to the fraction of construction expenditure that fell within the enterprise zone time limit.
Any qualifying expenditure arising under this section is treated as incurred at the time the purchase price on the relevant sale became payable.

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