Further submission by the CIOT sent to the Inland Revenue on 15 November 2002 in response to their e-mail of 12 November 2002 (attached in PDF format). We are now happy with items 5 and 8.
On item 6, we appreciate the difficulties you have in rewriting the legislation as currently worded. Having said that, section 146(5) clearly envisaged (before the six-year rule was introduced) that reimbursement of capital expenditure could result in something other than the grant of a tenancy. Otherwise the word "or" would not have been used in that subsection.
The only suggestion we can make as to "the rights and obligations attaching to the capital contribution" is that perhaps the draftsman was thinking of a licence to occupy. The clear use of the word "or" (reproduced yourselves in clauses 102 and 105) does suggest that, at some time, someone did think there was a case to be covered.
Our argument for changing clause 105 is that we cannot see the logic of providing for a deduction where the accommodation charge is based on cost, but then not providing it where market value has to be used (merely because the accommodation is six years old). For five year old accommodation there would still be a deduction for capital contributions to cost.
As you imply, perhaps it would be unlikely for the employer to require reimbursement of "a market value" but to be consistent with the rule in clause 102, and to fit with section 146(5), we think clause 105 does need to include either MV, or "A" together with all pre and post market value improvement expenditure. Otherwise the two methods for calculating "cost" are very inconsistent.
We look forward to hearing from you further on this point.
020 7235 9381