Capital Allowances Act 2001 section 88

Sales at under-value

Section 88 deals with the disposal value to be used for capital allowances purposes when a short-life asset is sold for less than its market value.

• When a short-life asset is sold below market value, the disposal value used for capital allowances purposes is generally the full market value, not the actual sale price.
• This prevents taxpayers from manipulating disposal values by selling short-life assets cheaply, for example to connected parties, in order to reduce balancing charges or increase balancing allowances.
• The market value rule does not apply if an election has been made under section 89(6), which deals with disposals to connected persons where both parties can jointly elect for the actual transaction value to apply.
• The market value rule also does not apply where the disposal gives rise to a charge to income tax on employment income under the Income Tax (Earnings and Pensions) Act 2003, as the undervalue is already being taxed through that route.