Capital Allowances Act 2001 section 62A

Cases in which disposal value is transition value

Section 62A provides a transitional rule for companies that elect for foreign branch profits exemption, ensuring that a tax-neutral disposal value is used when plant or machinery ceases to be used for a qualifying activity as a result of that election.

• When a company elects for foreign permanent establishment exemption and this causes plant or machinery to cease being used for a qualifying activity, the disposal value is set at a "transition value" — the amount that produces neither a balancing allowance nor a balancing charge.
• This tax-neutral treatment prevents the election itself from triggering an unexpected tax gain or tax loss on the affected assets.
• The relief does not apply where the qualifying expenditure on the plant or machinery (or on the group of assets it is used with) exceeds £5 million, and the company has used the asset outside the UK other than for a foreign permanent establishment at any time during a relevant preceding accounting period.
• A "relevant preceding accounting period" is the accounting period in which the foreign branch exemption election is made, or any earlier accounting period ending less than 6 years before the end of that period.