Section 29 of the Finance Act 1981 is a crucial piece of UK tax legislation concerning capital gains tax (CGT). It specifically deals with the treatment of assets that have been held partly for business purposes and partly for non-business purposes. Often referred to as “dual-purpose assets” or “part business use” assets, these are items that have been used for both trade or profession activities and for private, personal enjoyment.
Prior to the introduction of Section 29, the entire capital gain realized on the disposal of such an asset could be subject to CGT, regardless of the extent to which it had been used for business purposes. This presented a potential unfairness, as individuals might be taxed on gains largely attributable to personal use, even if a small portion of the asset’s use was related to a trade or profession.
Section 29 aimed to address this inequity by allowing for an apportionment of the gain between the business and non-business elements of the asset. In essence, it allows taxpayers to exclude from CGT the portion of the gain that is demonstrably attributable to the private or non-business use of the asset.
The key principle of Section 29 is that it provides a specific exemption from CGT for the part of the gain that is attributable to the non-business use of the asset. This exemption applies when the asset has been used partly for the purposes of a trade, profession, or vocation and partly for other purposes.
The calculation of the apportioned gain usually involves determining a reasonable method for allocating the asset’s value or the gain realized on disposal between the business and non-business usage. Factors considered might include the amount of time the asset was used for each purpose, the extent of physical use, and any other relevant circumstances that can justify the apportionment. Detailed records are essential to support any claim for apportionment. The burden of proof typically lies with the taxpayer to demonstrate the extent of non-business use and justify the apportionment method used.
Examples of assets commonly affected by Section 29 include:
- A room in a house used as a home office.
- A vehicle used for both business travel and personal use.
- Equipment or machinery used partly in a business and partly for personal projects.
While Section 29 offers a valuable CGT relief, it is crucial to note that the specific rules and their application can be complex. Proper record-keeping and accurate allocation are paramount. Furthermore, the interpretation of what constitutes “business use” and “non-business use” can be subject to HMRC scrutiny. Taxpayers should seek professional advice to ensure compliance and maximize any potential CGT savings under Section 29 of the Finance Act 1981. The specific circumstances of each case will determine the best approach to apportionment and the level of detail required to satisfy HMRC’s requirements.
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