Guillotine Provisions

Termination of Carry Forward of Certain Unused Capital Allowances

2015 Tax Year is the first year that your clients will feel the effect of the 2014 “guillotine” on certain capital allowances.

In summary the main rule is that if the tax life of the building or structure ended on or before 31 December 2014 then the allowances are lost and cannot be carried forward to future years. However if the tax life extends past 2014 then the allowances can still be used up to the year in which the tax life expires.

However all may not be lost and the following important points should be noted:

  • Only accelerated property and area based allowances are affected. The following allowances are not affected:
    • Normal industrial buildings allowances
    • Capital allowances claimed by an active trader (only passive investors are restricted)
    • Allowances i.e. excess relief carried forward due to the High Earners Restriction
    • Section 23 reliefs

A key point that may easily be missed is that it is the tax life that triggers the end of the allowances and not the period over which allowances are available. In many cases the tax life is the same as the writing down period but where it is not the allowances may be available for a significant period of time beyond the 2014 deadline. For example nursing home allowances will be claimed over 7 years but the tax life may be 10 or 15 years depending on when the building was first used.

The guillotine may have a significant cashflow impact for many taxpayers in 2015. Please do not hesitate to contact Anne Hogan or Sarah Kelly in our tax department if you think we can assist you in assessing the impact on your clients.