When does section 516 of the Capital Allowances Act 2001 apply?

Section 516 applies when a dwelling-house has been a qualifying dwelling-house for the entire period the person held the relevant interest. Because there is no period of non-qualifying use, no apportionment is needed, making this the simplest form of balancing adjustment calculation under United Kingdom capital allowances law.

How is a balancing allowance calculated under section 516?

A balancing allowance arises in two situations. If there are no proceeds from the balancing event, the allowance equals the full residue of qualifying expenditure. If proceeds exist but are less than the residue, the allowance equals the shortfall. This provides tax relief for the unrecovered portion of qualifying expenditure.

When does a balancing charge arise under section 516?

A balancing charge arises when proceeds from the balancing event exceed the residue of qualifying expenditure immediately before that event. The charge equals the excess of proceeds over the residue. This effectively claws back capital allowances that were given in excess of the actual net cost borne by the owner.

Can you give an example of a balancing adjustment under section 516?

If qualifying expenditure was £100,000 and writing-down allowances reduced the residue to £40,000, a sale for £25,000 produces a balancing allowance of £15,000. If demolished with no proceeds, the allowance is £40,000. A sale for £55,000 produces a balancing charge of £15,000.

Capital Allowances Act 2001 section 516

Dwelling-house a qualifying dwelling-house throughout

Section 516 deals with how balancing adjustments are calculated when a dwelling-house has been a qualifying dwelling-house for the entire period that the person held the relevant interest.

Where a dwelling-house has qualified throughout the period of ownership, a straightforward comparison of sale proceeds against the residue of qualifying expenditure determines the balancing adjustment.
A balancing allowance arises where there are no proceeds from the balancing event, equal to the full residue of qualifying expenditure, or where the proceeds are less than the residue, equal to the shortfall.
A balancing charge arises where the proceeds from the balancing event exceed the residue of qualifying expenditure, and the charge equals the amount of that excess.
This is the simplest form of balancing adjustment calculation, as no apportionment is needed between qualifying and non-qualifying use.

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