Capital Allowances Act 1990 (repealed)

138 Assets ceasing to belong to traders. U.K.

(1) Subsections (2) and (3) below shall have effect where an asset representing allowable [F1 research and development] expenditure of a capital nature incurred by the person carrying on a trade ceases to belong to him; and the occasion of that asset ceasing to belong to him is referred to below as “the relevant event”.

(2) If the relevant event occurs in or after the chargeable period for which an allowance in respect of the expenditure is made under section 137, then, subject to subsection (6) below—

(a) the sum by which the aggregate of the disposal value of the asset and the amount of the allowance exceeds the amount of the expenditure, or

(b) the amount of the allowance if it is less than that sum,

shall be treated as a trading receipt of the trade accruing at the time of the relevant event or, if the relevant event occurs on or after the date on which the trade is permanently discontinued, accruing immediately before the discontinuance.

F2 [(2A) Where one or more additional VAT rebates have been made in respect of the expenditure at any time before the relevant event, the amount of the allowance and the amount of the expenditure shall each be treated for the purposes of subsection (2)(a) and (b) above as reduced by the aggregate amount of such of those rebates as fell, or fall, to be treated as trading receipts under subsection (3A) below.]

(3) If the relevant event occurs before the chargeable period for which an allowance in respect of the expenditure would fall to be so made, that allowance shall not be made, but, subject to subsection (6) below, if the disposal value of the asset is less than the expenditure, a deduction equal to the difference shall be allowed in taxing the trade for the chargeable period in which the relevant event occurs.

F3 [(3A) In any case where—

(a) a person carrying on a trade has incurred allowable [F4 research and development] expenditure of a capital nature as mentioned in paragraph (a) or (b) of section 137(1), and

(b) an additional VAT rebate in respect of that expenditure is made to him at any time before the relevant event occurs in relation to the asset in question,

then, unless that rebate falls to be brought into account for the purpose of making allowances and charges under Part I or Part II, an amount equal to the rebate shall be treated as a trading receipt of the trade accruing for the chargeable period related to the making of the rebate or, if the rebate is made on or after the date on which the trade is permanently discontinued, accruing immediately before the discontinuance.]

(4) For the purposes of this section the disposal value of an asset depends upon the nature of the relevant event, and—

(a) if that event is the actual sale of the asset at a price not lower than that which it would have fetched in the open market, equals the proceeds of that sale;

(b) if that event is the deemed sale of the asset under subsection (5) below, equals the deemed proceeds of sale under that subsection; and

(c) in any other event, equals the price which the asset would have fetched if sold in the open market.

(5) Where an asset is destroyed, it shall for the purposes of this section be treated as if it had been sold immediately before its destruction, and any insurance moneys or other compensation of any description received by the person carrying on the trade in respect of the destruction, and any moneys received by him for the remains of the asset, shall be treated as if they were proceeds of that sale; and where this subsection has effect on the demolition of an asset—

(a) the cost of demolition to the person carrying on the trade shall, for the purposes of subsections (2) and (3) above, be added to the expenditure represented by the asset, and

(b) if the case falls within the first of those subsections but, by reason of that addition, the aggregate there referred to is less than the amount of the expenditure represented by the asset, then, unless prior to its demolition the asset had begun to be used for purposes other than [F5 research and development] related to the trade, and subject to subsection (6) below, a deduction equal to the difference shall be allowed in taxing the trade for the chargeable period in which the asset is treated as having been sold or, if it is treated as having been sold on or after the date on which the trade is permanently discontinued, for the last chargeable period in which the trade was carried on before the discontinuance.

(6) No amount shall be allowed or charged by virtue of this section in respect of any relevant event if that event gives rise to a balancing allowance or balancing charge under Part I or Part II.

(7) In relation to any chargeable period F6 ... ending after 26th July 1989, subsection (6) above shall have effect with the omission of the words “allowed or" and “balancing allowance or".

[F7 (7A) Where the relevant event is the material disposal of a licence for the purposes of section 118A, subsection (4) above shall have effect subject to that section.]

F8 [(8) For the purposes of subsections (2) and (3) above, any question arising whether the relevant event occurred in or after, or (as the case may be) before, the chargeable period for which an allowance is given in respect of the expenditure there mentioned shall be determined without reference to the making of any allowance by virtue of section 137(1A); but this subsection is without prejudice to any question as to the amount of the expenditure or of the allowance for the purposes of those subsections.]

Textual Amendments

F1 Words in s. 138(1) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F2 S. 138(2A) inserted(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 13(1).

F3 S. 138(3A) inserted(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 13(2).

F4 Words in s. 138(3A)(a) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F5 Words in s. 138(5)(b) substituted (with effect in accordance with s. 68(1)(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 19 paras. 7, 8

F6 Words in Act repealed (with effect in accordance with s. 211(2) of the amending Act) by Finance Act 1994 (c. 9), s. 213(1), Sch. 26 Pt. 5(24)

F7 S. 138(7A) inserted (in relation to tax for the year 1992/93 and subsequent years subject as mentioned in s. 289 of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 289(1), 290(1), Sch. 10 para. 21(2) (with ss. 60, 101(1), 201(3)).

F8 S. 138(8) added(for any chargeable period or its basis period ending on or after 06.04.1990) by Finance Act 1991 (c. 31, SIF 63:1), s. 59, Sch. 14 Pt. III para. 13(3).

Modifications etc. (not altering text)

C1 S. 138 modified (19.9.1994) by Coal Industry Act 1994 (c. 21), s. 68(4), Sch. 4 para. 20(6); S.I. 1994/2189, art. 2, Sch.

C2 S. 138(3) (in relation to tax for the year 1992/93 and subsequent years subject as mentioned in s. 289 of the amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), ss. 195(6)(b),289(1) (with ss. 60, 101(1), 201(3)).