Further details have been released in respect of how assets benefiting from the super deduction will be taxed when they are sold, our Corporate and Business Tax Partner, Mark Pashley, gives an update:
We already knew that the disposal proceeds arising from the sale of assets which had benefited from the super deduction announced in the 3 March budget would be taxed as business income and not deducted from the capital allowances pool (where in some cases deferral would have been possible) but it has now been announced that the disposal value will be uplifted by 30% to take account of the fact that the relief on the original expenditure was greater than 100%.
So whilst the 130% allowance may, at first glance, look a very attractive proposition, the impact of the 30% uplift to disposal proceeds should also be taken in place and coupled with the fact that corporation tax rates are increasing to 25% in two years’ time. It is possible that where assets are held for a relatively short period of time before sale and the asset in question holds its value, companies might be worse off claiming the super deduction as the 30% “bonus uplift” will be clawed back and not just at the 19% rate enjoyed on purchase but at the higher rate in force from 2023 of 25%. My advice is buyers beware and, like all things tax driven, make business decisions for solid commercial reasons and do not be tempted by the tax tail wagging the dog.