Termination Of Carry Forward Of Certain Unused Capital Allowances
With effect from 1 January 2015, any unused capital allowances which are carried forward beyond the tax life of the building or structure to which they relate are immediately lost.
Essentially, this means that if the tax life has ended at any time up to the end of 2014, then the unused allowances are lost in 2015. On the other hand, if the tax life is due to end later than 2014 then the allowances are lost in the year following that in which the tax life of the building expires.
A key point to note is that the allowances are terminated by reference to the end of the “tax life” of the property and not by reference to the period over which allowances are available. In many instances, the “tax life” will extend far beyond the period over which allowances are available, as follows
It should be noted that any unused capital allowances carried forward purely by virtue of the application of the high earners’ restriction to the individuals concerned are not within the scope of these provisions and can therefore continue to be carried forward indefinitely. In addition these provisions do not apply to ‘normal’ industrial buildings allowances e.g. factories or section 23 reliefs.
The application of these provisions can be extremely difficult the rules in relation to the make-up of carried forward reliefs and the order of offset can be complex. It is strongly recommended that individuals who may have a claim to such capital allowances should carry out a detailed review of all capital allowances carried forward with a view to determining the quantum that may be affected by these “guillotine” provisions.
Revenue have issued an e-brief recently to remind taxpayers and agents that when preparing capital allowance computations, in order to complete their income tax return, that they should adjust the 2015 carry forward amount, for inclusion in their subsequent return, to take account of any building or structure whose “tax life” has ended in 2014 or prior to this. This will ensure that the amount brought forward for the purposes of the capital allowances computation for 2015 will be correct.
If we take an example of an individual who invested in a nursing home and an urban renewal programme in 2005. The individual has total capital allowances of €20k forward at 31 December 2014 attributable evenly to both investments. The allowances relating to the nursing home investment have expired and will not be available in future periods but the urban renewal allowances continue to be available until 2030 due to the longer tax life. The adjusted allowance figure for carry forward to 2015 is €10k
If you require further information on the impact of these provisions for you, please do not hesitate to contact us.