Capital Allowances Act 1990

138Assets ceasing to belong to traders

(1)Subsections (2) and (3) below shall have effect where an asset representing allowable scientific research expenditure of a capital nature incurred by the person carrying on a trade ceases to belong to him; and the occasion of that asset ceasing to belong to him is referred to below as “the relevant event”.

(2)If the relevant event occurs in or after the chargeable period for which an allowance in respect of the expenditure is made under section 137, then, subject to subsection (6) below—

(a)the sum by which the aggregate of the disposal value of the asset and the amount of the allowance exceeds the amount of the expenditure, or

(b)the amount of the allowance if it is less than that sum,

shall be treated as a trading receipt of the trade accruing at the time of the relevant event or, if the relevant event occurs on or after the date on which the trade is permanently discontinued, accruing immediately before the discontinuance.

(3)If the relevant event occurs before the chargeable period for which an allowance in respect of the expenditure would fall to be so made, that allowance shall not be made, but, subject to subsection (6) below, if the disposal value of the asset is less than the expenditure, a deduction equal to the difference shall be allowed in taxing the trade for the chargeable period in which the relevant event occurs.

(4)For the purposes of this section the disposal value of an asset depends upon the nature of the relevant event, and—

(a)if that event is the actual sale of the asset at a price not lower than that which it would have fetched in the open market, equals the proceeds of that sale;

(b)if that event is the deemed sale of the asset under subsection (5) below, equals the deemed proceeds of sale under that subsection; and

(c)in any other event, equals the price which the asset would have fetched if sold in the open market.

(5)Where an asset is destroyed, it shall for the purposes of this section be treated as if it had been sold immediately before its destruction, and any insurance moneys or other compensation of any description received by the person carrying on the trade in respect of the destruction, and any moneys received by him for the remains of the asset, shall be treated as if they were proceeds of that sale; and where this subsection has effect on the demolition of an asset—

(a)the cost of demolition to the person carrying on the trade shall, for the purposes of subsections (2) and (3) above, be added to the expenditure represented by the asset, and

(b)if the case falls within the first of those subsections but, by reason of that addition, the aggregate there referred to is less than the amount of the expenditure represented by the asset, then, unless prior to its demolition the asset had begun to be used for purposes other than scientific research related to the trade, and subject to subsection (6) below, a deduction equal to the difference shall be allowed in taxing the trade for the chargeable period in which the asset is treated as having been sold or, if it is treated as having been sold on or after the date on which the trade is permanently discontinued, for the last chargeable period in which the trade was carried on before the discontinuance.

(6)No amount shall be allowed or charged by virtue of this section in respect of any relevant event if that event gives rise to a balancing allowance or balancing charge under Part I or Part II.

(7)In relation to any chargeable period or its basis period ending after 26th July 1989, subsection (6) above shall have effect with the omission of the words “allowed or” and “balancing allowance or”.