Taxes Consolidation Act 1997 section 275

Restriction of balancing allowances on sale of industrial building or structure

Section 275 restricts balancing allowances on the sale of an industrial building or structure where an inferior interest (such as a lease) has been created, to prevent the acceleration of capital allowances through contrived transactions.

• Where a relevant interest is sold subject to an inferior interest and a balancing allowance would otherwise arise, the section applies if the parties are connected or the main purpose is to obtain a tax allowance.
• The net sale proceeds are increased by any premium received on the grant of the inferior interest, and further adjusted to reflect a commercial rent where none is being paid, but the increase cannot exceed the amount needed to eliminate the balancing allowance entirely.
• Where a balancing allowance is denied or reduced under this section, the residue of expenditure passing to the purchaser is calculated as if the allowance had been granted in full, preventing the purchaser from claiming an artificially inflated allowance.
• Any variation of the terms of the inferior interest before the sale is treated as part of the original grant, so that the anti-avoidance rules cannot be circumvented by altering the lease terms between the date of grant and the date of sale.