TW Ed is reassured that the new anti-avoidance provisions will not prevent conventional agreements between vendor and purchaser to fix a price.
When the new anti-avoidance measures were announced, I read
“Businesses who seek to obtain tax advantages by... ... manipulating disposal values leading to excess capital allowances...” and I was concerned that this could be used by HMRC to attack conventional agreements whereby the price for eligible items is fixed some way off market value – deliberately – usually to prevent the vendor’s having to contend with a substantial Balancing Charge on sale.
Such agreements, where the consideration for eligible items can be fixed at as little as £1, are quite common in property transactions but are not necessarily limited to only property. My concern (paranoia, if you will), was caused partly because
- CAA 2001 s 215 is a deliberately wide-ranging anti-avoidance provision, which had caused some concern on its most recent revision; and
- When the new fixtures rules were to be phased in over 2012 – 2014, HMRC had initially proposed in its 2011 consultation effectively to proscribe such “£1 elections” and insist on a minimum price equivalent to the vendor’s Tax Written Down Value.
Ray Chidell, who has written several books on Capital Allowances through Claritax Books, was more relaxed, pointing out that CAA 2001 s 215 would be invoked only where tax avoidance is a specific reason for carrying out a particular transaction, and:
“The ability to sell fixtures for £1 under cover of a s198 election has been well known since the rules for elections were introduced in FA 1997. In any case, those elections are overwhelmingly in the context of genuine commercial transactions, and I think HMRC would really struggle to convince a Tribunal or Court that tax avoidance is one of the main motives in carrying out such a transaction”.