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Readers' Forum - Building claim

14 July 2005
Issue: 4016 / Categories:

Our client recently purchased an industrial building for £900,000, which it is now letting to a tenant who occupies it for manufacturing purposes. The building was originally constructed in 1983 at a cost of £100,000, but in subsequent years the previous owners incurred substantial capital expenditure (of some £500,000 in 1990 and then £300,000 in 2000) extending the property.

Our client recently purchased an industrial building for £900,000, which it is now letting to a tenant who occupies it for manufacturing purposes. The building was originally constructed in 1983 at a cost of £100,000, but in subsequent years the previous owners incurred substantial capital expenditure (of some £500,000 in 1990 and then £300,000 in 2000) extending the property.
Industrial buildings allowances (IBAs) have been claimed at 4% per annum on the original cost, with a 25-year life ending in 2008. IBAs on the additional expenditure at 4% p.a. have been claimed on the basis of 'separate' 25-year periods, ending in 2015 and 2025 respectively. The price our client paid was for the entire property, with no apportionment between the 'original' building and the deemed 'new' buildings. Our client wishes to claim to write off the whole £900,000 during the remaining three years up to 2008.
Where there is additional capital expenditure incurred after the original building construction, the legislation appears unclear as to the period over which the purchaser may claim to write off his qualifying expenditure on the building. We believe that the 25-year life for the whole expenditure is fixed by reference to the original cost of the building.
The alternative view is that each element of expenditure represents a separate 'building' with its own 25-year tax life, in which case how is our client's expenditure of £900,000 allocated against each 'building'?
Readers' thoughts on this matter are welcomed.
Query T16,642 

Issue: 4016 / Categories:
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