Chapter 6: Balancing adjustments
Section 513: When balancing adjustments are made
1810.This section is based on section 87(1) and (2) of CAA 1990. It sets out when balancing adjustments are made and who they are made to or on.
Section 514: Balancing events
1811.This section is based on parts of sections 87(1) and 150(4) of CAA 1990. It lists events which can trigger a balancing adjustment.
Section 515: Proceeds from balancing events
1812.This section is based on part of section 156 of CAA 1990. It sets out in tabular form the proceeds to be used in calculating the balancing adjustment.
Section 516: Dwelling-house a qualifying dwelling-house throughout
1813.This section is based on section 87(3) and (4) and part of section 88(1) of CAA 1990.
1814.It sets out the calculation of a balancing adjustment if the dwelling-house was always a qualifying dwelling-house while the person held the relevant interest. Essentially the balancing adjustment is found by a straight comparison of the proceeds against the residue.
Section 517: Dwelling-house not a qualifying dwelling-house throughout
1815.This section is based on section 88 of CAA 1990. It sets out the calculation of a balancing adjustment if the dwelling-house was not a qualifying dwelling-house for some of the time that the person held the relevant interest.
1816.The calculation starts by comparing the proceeds with the person’s “starting expenditure”. The “starting expenditure” is defined in section 521.
1817.If the proceeds exceed or equal the starting expenditure, all allowances given to the person are recaptured by a balancing charge.
1818.If the proceeds are less than the starting expenditure then the person has broadly suffered a “loss” on the dwelling-house. This “loss” is pro-rated to the part of the person’s period of ownership during which the dwelling-house was a qualifying dwelling-house. There is a formula for this in section 522 and the result is called the adjusted net cost.
1819.Then there is a balancing allowance or balancing charge, as the case may be, based on whether the adjusted net cost is more (allowance) or less (charge) than the allowances given to the person. The adjustment is the difference between the proceeds and the adjusted net cost.
Section 518: Overall limit on balancing charge
1820.This section is based on section 87(6) of CAA 1990. It limits balancing charges on a person to allowances given to that person.
Section 519: Recovery of old initial allowances made on incorrect assumptions
1821.This section is based on section 87(7) and (8) of CAA 1990. It ensures that initial allowances made under earlier provisions can be withdrawn if the dwelling-house has not yet been used and turns out not to be a qualifying dwelling-house when it is first used. This is a transitional provision which, as time goes by, is increasingly unlikely to be needed.
Section 520: The relevant period of ownership
1822.This section is based on section 88(5) of CAA 1990 (“the relevant period”).
Section 521: Starting expenditure
1823.This section is based on section 88(5) of CAA 1990 (“the capital expenditure”). There seems to be an obvious mistake in section 88(5) as it must have been intended to define “the capital expenditure appropriate to the dwelling-house” which is the term used in section 88(2). This section is rewritten to correct that mistake.
Section 522: Adjusted net cost
1824.This section is based on section 88(5) of CAA 1990.
