(1) This section applies to—

(a) immovable goods which are acquired or developed by a taxable person prior to 1 July 2008[, being completed immovable goods before 1 July 2008,]¹ and have not been disposed of by that taxable person prior to that date, until such time as those goods have been disposed of by that taxable person on or after that date, and

(b) an interest in immovable goods within the meaning of [section 4,]² other than a freehold interest or a freehold equivalent interest, created by a taxable person prior to 1 July 2008 and held by a taxable person on 1 July 2008 [and the reversionary interest, within the meaning of section 4(9), on that interest until that interest is surrendered after 1 July 2008]³.

(1A) Where an interest to which subsection (1)(b) applies is surrendered, then, for the purposes of the application of section 12E in respect of the immovable goods concerned—

(a) the total tax incurred shall include the amount of tax chargeable on the surrender in accordance with subsection (7) and shall not include tax incurred prior to the creation of the surrendered interest, and

(b) the adjustment period shall consist of the number of intervals specified in subsection (11)(c)(iv) and the initial interval shall begin on the date of that surrender.

(2) In the case of a supply of immovable goods to which subsection (1)(a) applies, being completed immovable goods within the meaning of section 4B,—

(a) where the person supplying those goods had no right to deduction under section 12 in relation to the tax chargeable on the acquisition or development of those goods prior to 1 July 2008, and

(b) if any subsequent development of those immovable goods occurs on or after 1 July 2008—

(i) that development does not and is not intended to adapt the immovable goods for a materially altered use, and

(ii) the cost of that development does not exceed 25 per cent of the consideration for that supply,

then, subject to section 4B(3), that supply is not chargeable to tax but a joint option for taxation may be exercised in respect of that supply in accordance with section 4B(5) and that tax is payable in accordance with section 4B(6).

(3) Where a person referred to in subsection (1)—

(a) acquired, developed or has an interest in immovable goods to which this section applies

(b) was entitled to deduct tax, in accordance with section 12 on that person’s acquisition or development of those goods, and

(c) [makes]¹ a letting of those immovable goods to which [paragraph 11 of Schedule 1]² applies,

then, that person shall calculate an amount in accordance with the formula in section 4(3)(ab) and that amount shall be payable as if it were tax due by that person in accordance with section 19 for the taxable period in which that letting takes place.

(4) An assignment or surrender of an interest in immovable goods to which subsection (1)(b) applies is deemed to be a supply of immovable goods for the purposes of this Act for a period of 20 years from the creation of the interest [or the most recent assignment]¹ of that interest before 1 July 2008, whichever is the later.

(5) If a person makes a supply of immovable goods to which this section applies and tax is chargeable on that supply and that person was not entitled to deduct all the tax charged to that person on the acquisition or development of those immovable goods that person shall be entitled to make the appropriate adjustment that would apply under section 12E(7)(a) as if the capital goods scheme applied to that transaction.

(6) In the case of an assignment or surrender of an interest in immovable goods referred to in subsection (4)—

(a) tax shall be chargeable if the person who makes the assignment or surrender was entitled to deduct in accordance with section 12 any of the tax chargeable on the acquisition of that interest, or the development of those immovable goods, and

(b) tax shall not be chargeable where the person who makes the assignment or surrender had no right to deduction under section 12 on the acquisition of that interest or the development of those immovable goods, but a joint option for taxation of that assignment or surrender may be exercised.

(7)(a) Notwithstanding section 10, the amount on which tax is chargeable on a taxable assignment or surrender to which subsection (6) applies shall be the amount calculated in accordance with the formula in paragraph (b) divided by the rate as specified in section 11(1)(d) expressed in decimal form.

(b) The amount of tax due and payable in respect of a taxable assignment or surrender to which subsection (6) applies is an amount calculated in accordance with the following formula:

T x N
     Y

where—

T is the total tax incurred referred to in subsection (11)(d) [except for the amount of tax charged in respect of any development by the person who makes the assignment or surrender following the acquisition of this interest]¹,

N is the number of full intervals plus one, that remain in the adjustment period referred to in subsection (11)(c), at the time of the assignment or surrender,

Y is the total number of intervals in that adjustment period for the person making the assignment or surrender,

and section 4(8) shall apply to that tax.

(8)(a) Where an interest in immovable goods referred to in subsection (6) is assigned or surrendered [to a taxable person]¹ during the adjustment period and tax is payable in respect of that assignment or surrender, then the person who makes the assignment or surrender shall issue a document to the person to whom the interest is being assigned or surrendered containing the following information:

(i) the amount of tax due and payable on that assignment or surrender, and

(ii) the number of intervals remaining in the adjustment period [as determined in accordance with subsection (11)(c)(iv)]².

(b) Where paragraph (a) applies, the person to whom the interest is assigned or surrendered shall be a capital goods owner for the purpose of section 12E in respect of the capital good being assigned or surrendered, and shall be subject to the provisions of that section and for this purpose—

(i) the adjustment period shall be the period referred to in subsection (11)(c) as correctly specified on the document referred to in paragraph (a),

(ii) the total tax incurred shall be the amount of tax referred to in subsection (11)(d) as correctly specified in the document referred to in paragraph (a), and

(iii) the initial interval shall be a period of 12 months beginning on the date on which the assignment or surrender occurs.

(9)(a) Where a person cancels an election to be an accountable person in accordance with section 8(5A) then, in respect of the immovable goods which were used in supplying the services for which that person made that election, section 12E does not apply if those immovable goods are held by that person on 1 July 2008 and are not further developed after that date.

...¹

(10) In the application of section 12E to immovable goods and interests in immovable goods to which this section applies, subsections (4), (5) and (6) of that section shall be disregarded in respect of the person who, on 1 July 2008, owns those immovable goods or holds an interest in those immovable goods, but—

(a) if that person develops those immovable goods and that development is a refurbishment, within the meaning of section 12E, that is completed on or after 1 July 2008, subsections (4), (5) and (6) of that section shall not be disregarded in respect of that refurbishment;

(b) if, on or after 23 February 2010, that person—

(i) first uses those immovable goods (in this subsection referred to as the "first use"), or

(ii) changes the use of those immovable goods (in this subsection referred to as the "changed use"),

and the first use, or the changed use, as the case may be, is a use of those immovable goods for a purpose other than the provision of a letting of the type referred to in paragraph 11(1) of Schedule 1, then subsection (6)(a) of section 12E shall not be disregarded for the remainder of the adjustment period applicable to those immovable goods.

(11) For the purposes of applying section 12E [to immovable goods]¹ or interests in immovable goods to which this section applies—

(a) any interest in immovable goods to which this section applies shall be treated as a capital good,

(b) any person who has an interest in immovable goods to which this section applies shall be treated as a capital goods owner, but shall not be so treated to the extent that the person has a reversionary interest in those immovable goods if those goods were not [developed]² by, on behalf of, or to the benefit of that person,

(c) the period to be treated as the adjustment period in respect of immovable goods [or interests in immovable goods]³ to which this section applies is—

(i) in the case of the acquisition of the freehold interest or freehold equivalent interest in those immovable goods, 20 years from the date of that acquisition,

(ii) in the case of the creation of an interest in those immovable goods, 20 years or, if the interest when it was created was for a period of less than 20 years, the number of full years in that interest when created, whichever is the [shorter,]⁴

(iii) in the case of the assignment or surrender of an interest in immovable goods [prior to 1 July 2008]⁵ the period remaining in that interest at the time of the assignment or surrender of that interest or 20 years, whichever is the [shorter, or]⁶

[(iv) in the case of—

(I) the surrender or first assignment of an interest in immovable goods on or after 1 July 2008, the number of full years remaining in the adjustment period as determined in accordance with subparagraphs (ii) and (iii), plus one, or

(II) the second or subsequent assignment of an interest in immovable goods after 1 July 2008, the number of full intervals remaining in the adjustment period as determined in accordance with clause (I), plus one,

and this number shall thereafter be the number of intervals remaining in the adjustment period,]⁷

but where the immovable goods have been developed since the acquisition of those immovable goods or the creation of that interest, 20 years from the date of the most recent development of those goods,

(d) the amount of tax charged, or the amount of tax that would have been chargeable but for the application of sections 3(5)(b)(iii) or 13A, to the person treated as the capital goods owner on the acquisition of, or ...⁸ development of, the capital goods shall be treated as the total tax incurred,

(e) the total tax incurred divided by the number of [intervals]⁹ in the adjustment period referred to in paragraph (c) shall be treated as the base tax amount,

(f) each year in the adjustment period referred to in paragraph (c) shall be treated as an interval,

(g) the first 12 months of the adjustment period referred to in paragraph (c) shall be treated as the initial interval,

(h) the second year of the adjustment period referred to in paragraph (c) shall be treated as the second interval[, but in the case of an interest which is assigned or surrendered on or after 1 July 2008, the second interval of the adjustment period shall have the meaning assigned to it by section 12E]¹⁰,

(i) each year following the second year in the adjustment period referred to in paragraph (c) shall be treated as a subsequent interval,

(j) the amount which shall be treated as the total reviewed deductible amount shall be the amount of the total tax incurred as provided for in paragraph (d) less—

(i) any amount of the total tax incurred which was charged to the person treated as the capital goods owner but which that owner was not entitled to deduct in accordance with section 12,

(ii) any amount accounted for in accordance with section 12D(4) by the person treated as the capital goods owner in respect of a transfer of the goods to that owner prior to 1 July [2008,]¹¹

(iii) any tax payable [in respect of those capital goods in accordance with section 3(1)(e) or 4(3)(a)]¹² by the person treated as the capital goods [owner, and]¹²

[(iv) where an adjustment of deductibility has been made in respect of the capital good in accordance with subsection (3) or section 4(3)(ab), the amount "T" in the formula in section 4(3)(ab),]¹³

(k) the amount referred to in paragraph (d) less the amount referred to in paragraph (j) shall be treated as the non-deductible amount,

and for the purposes of applying paragraphs (f), (h) and (i) "year" means each 12 month period in the adjustment period, the first of which begins on the first day of the initial interval referred to in paragraph (g).

(12) Where a taxable person acquires immovable goods on or after 1 July 2007, then, notwithstanding subsection (10), section 12E(4) shall apply and, notwithstanding subsection (11)(j), the total reviewed deductible amount shall have the meaning assigned to it by section 12E. However this subsection does not apply where a taxable person has made an adjustment in accordance with section 12(4)(f) in respect of those goods.