industrial buildings allowance

zoe

am stressing, as need help re : industrial buildings allowance for the second buyer? is it 4% of the original purchase cost of the first buyer or

sellers written down value divided by tax life remaining?

am confused as text book states first one, but notes and interent says second one? help please:confused1:

peugeot

From March 2007 if a 2nd hand building is acquired, the buyers claim to IBA will be based on the amount of expenditure not yet written off for tax purposes i.e. the balance of the seller's available allowances.This stops the sale of a building crystallising any balancing allowances before the IBA's are eventually abolished.

Kind regards
Steve

zoe

with that balance of the sllers cost less their iba do you divide it by the number of years left ( up unto the 25yrs) and this is the ib each year from there on? :001_rolleyes:

fuzzymuzzy

I thought I had IBA's sorted, but I have just looked at the Dec 07 exam and the IBA answer on there has confused me. Anyone else looked at that? Its task 2.2.


Ta

CelticStar

I think that they have changed the papers and we don't need to know the extra elements that are tested on that paper. :001_smile:

Hamish

Our tutor changed the dates for this paper and then calculated the balance remaining on 114 months. I would have done years and then time appotioned the last 6 months??

Industrial buildings period from 1 November 1990 to 31 October 2015=9 1/2 years or 114 months.

The tutor has written the answer as £140,000 x 8/114 = £9825.

I have a different answer. Anyone else? Please explain

Many thanks.

peugeot

If the building is still in the 25 year IBA period (IBA's are given on a 4% straight line basis), and the building is subsequently sold after (say) 10 years then this means that there is still a balance of eligible IBA's left to claim on the building.

The buyer cannot pick up from where the seller left off, he has to start as follows (which is where the previous poster's tutor has got their answer):

(Residual value after sale / buildings remaining tax life in months) x 12 (x 12 assuming a full year)

For AAT purposes the 'residual value after sale' will probably be the tax written down value of the building.

Best wishes
Steve

CelticStar

In my textbook the following is written:

The industrial buildings allowance implications for both the seller and the buyer of an industrial building during its 25 year 'tax life' was changed radically in the 2007 budget.


It then goes on to say that there are no IBAs, balancing charges or balancing allowances for the seller for the CAP in which the building is sold.

With regard to the buyer, the WDAs available will be identical to the amounts previously available to the seller (ie 4% of the ORIGINAL eligible amount - nothing to do with the sale price). The new owner is entitled to this amount for each 12 month CAP providing the building is in use on the last day of the CAP, for the remainder of the 25 year 'tax life' of the building.

The old papers are now out of date as they refer to earlier budgets. Only the 2008 exam papers refer to the 2007 budget where this was changed (exams are always a year behind).


HTH.
CelticStar :001_smile:

peugeot

I am working on the basis that the IBA announcement was made in the March 07 budget (effective immediately from 21 March 07).

I think that is what my original post said ? In your exams you work on the basis that a building is sold 2nd hand then you claim IBA's at the tax written down value (surely)

CelticStar

I can see where you're coming from Peugeot but that's not what it says in the Osbourne text book. I've slightly paraphrased what it says above but it is nearly copied word for word and they have emphasised 'original eligible amount' as the basis for IBA 'regardless of the amount paid for by the buyer' - ie the new owner.

I had the previous Osbourne book (2006/07 exams) and this contained a much more complex set of rules - obviously based on the old legislation. This explanation is missing from the 2007/08 text book and has been replaced by the information I have given above.

Having thought about it, looked on HMRC's website and checked BPP's book they all seem to say different things. Can anyone clarify which is right please?

This person doesn't seem very sure either:

http://www.aat.org.uk/forums/showthread.php?t=17205&highlight=industrial

peugeot

My reply was based on the budget announcement on 21 March 2007. However, I am not sure if the textbooks will incorporate the amendments made in that budget.

It's probably best going back to the tutor and seeking their input.

Best wishes
Steve

jilbo

If it's any help my tutor at Premier Training told me that the complex rule was dumped last year and the allowance is simply 4% of the original cost regardless of how much the second owner paid for the building. Premier use Osbourne books though so like you say if they all state different then who is actually correct!

I'm going with my tutor and I'm not going to worry about it any longer, after all I'm going to get something wrong in the exam. If it's in the exam what I may do is put a note in explaining that we can't get a straight answer as to which is the correct method and show that I know both. That way, hopefully I won't lose any marks. Well that's my theory anyway.

Good luck everyone.

Maybes

This has taken a weight off my mind. I though I would be the only one struggling. So really nobody knows the correct answer for sure?

The tutor told me that its the tax written value divided by the tax life left on the building. i.e. 4%. Yet the exam papers all differ.....VERY CONFUSING!!!:glare: