Taxes Consolidation Act 1997 section 409E

Income tax: ringfence on use of certain capital allowances on certain industrial buildings and other premises

Section 409E restricts the use of capital allowances by individuals who acquire specified buildings — industrial buildings, third-level education premises, and childcare facilities — from companies, confining those allowances solely to rental income from the building concerned.

• The section applies where a company has held the relevant interest in a specified building on or after 1 January 2003 and an individual subsequently acquires that interest, becoming entitled to claim capital allowances against their rental income.
• Capital allowances available to the individual are ring-fenced: they may not exceed the profit rent from the specified building for the year of assessment and can only be set against that profit rent.
• Where the available allowance exceeds the profit rent in any year, the excess is carried forward and treated as part of the allowance for the following year, to be set against profit rent from the same building in that and subsequent years.
• The anti-avoidance rationale is to prevent a mismatch between the corporation tax rate at which a company claims (or suffers clawback of) allowances and the higher income tax rate at which an individual purchaser might otherwise claim them.