Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

275 Restriction of balancing allowances on sale of industrial building or structure


This section is designed to prevent a tax avoidance device whereby certain contrived transactions would otherwise enable the cost of an industrial building or structure to be written off for tax purposes at a greatly accelerated rate. For example, a company which has incurred expenditure on an industrial building or structure might grant a long lease (say, for 999 years) of the premises to an associated company and merely retain the reversion. The reversion would be of little value and the company might sell it (its “relevant interest”) at the very low market value to another associated company. By so doing, it could claim a large balancing allowance by reference to the original cost of the building or structure less the proceeds of sale and the capital allowances already granted. Section 275 prevents this by withdrawing the right to a balancing allowance where such sales take place within groups of companies or where they are designed solely or mainly to achieve a tax advantage.



(1)inferior interest” is any interest in or right over the building or structure.

premium” is defined so as to exclude any part of a premium which may be treated as income under section 98. This avoids what would otherwise be an effective double charge to tax.

capital consideration” is a capital sum or consideration which would be a capital sum if it had been a payment of money.

rent” includes any consideration which is not capital consideration.

commercial rent” is the rent which would have been required in respect of the inferior interest, having regard to any premium payable for that interest, if the transaction had been at arm’s length.


(2) The section applies where —

  • the relevant interest in a building or structure is sold subject to an inferior interest,
  • (apart from this section) a balancing allowance under section 274 would arise on the person (“the relevant person”) who immediately before the sale was entitled to the relevant interest, and
  • the relevant person, the person who buys the relevant interest and the person to whom the inferior interest was granted, or any 2 of those persons, are connected persons (see section 10), or it appears that the sole or main benefit of the sale or grant of the inferior interest was the securing of a capital allowance.

Restriction of balancing allowance

(3) For the purpose of computing a balancing allowance or balancing charge on the sale of the relevant interest, the proceeds of sale are to be taken as —

  • the actual sales proceeds increased by the amount of any premium received by the seller on the grant of the inferior interest, or
  • where no rent is payable, or a commercial rent is not payable, for the grant of the inferior interest, the amount of any premium received by the seller on the grant of the inferior interest plus an amount equal to what the sales proceeds would have been if a commercial rent (having regard to any premium actually payable) had been payable on an open market sale of the relevant interest.

The proceeds of the sale as so taken, however, cannot exceed the amount necessary to secure that no balancing allowance is made.

Residue of expenditure available to purchaser of relevant interest

(4) Where a balancing allowance has been denied or reduced under subsection (3), the residual capital allowances available to the purchaser of the relevant interest are to be calculated as if the seller had in fact obtained the balancing allowance so denied or reduced. This provision is necessary to prevent the purchaser in turn from claiming an artificially contrived balancing allowance.

Variation of terms on which inferior interest is granted

(5) Where the terms on which an inferior interest was granted are varied before the sale of the relevant interest, any capital consideration payable for the variation is treated as a premium payable for the grant of the interest. Also, in any such case, the question of what rent, if any, is payable in respect of the interest is determined by reference to the terms in force immediately before the relevant interest is sold. This provision effectively prevents persons avoiding the effect of the section by varying the terms of the grant of the inferior interest between the time of the granting of that interest and the time of the sale of the relevant interest.

Relevant Date: Finance Act 2019