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HMRC internal manual

Capital Allowances Manual

PMA: Fixtures: Background and meaning of fixture

CAA01/S173 (1)

A fixture is an asset that is installed or otherwise fixed in or to a building or land so as to become part of that building or land in law. This means that fixture has the same meaning in the fixtures legislation as in property law. Any boiler or water filled radiator installed in a building as part of a space or water heating system is also a fixture for the purposes of the fixtures legislation.

Property law distinguishes between chattels and fixtures. A chattel is an asset, which is tangible and moveable. A chattel may become a fixture if it is fixed to a building or land. For example, before it is installed in a building as part of a central heating system, a central heating radiator is a chattel. Once installed, it becomes a fixture.

The courts have developed two tests for determining whether an asset is a fixture or a chattel:

  • the method and degree of annexation,
  • the object and purpose of annexation.

The first test is not conclusive. Some degree of physical affixation is required beforea chattel becomes a fixture. If the asset cannot be removed without serious damage to, or destruction of, the building or land, that is strong evidence that it is a fixture. But it is neither a necessary nor a sufficient condition.

The second test is now accorded greater significance by the courts than the first. The courts look at the purpose and intention of the asset and its affixation. If, when viewed objectively, it is intended to be permanent and effect a lasting improvement to the property, the asset is a fixture. If the attachment is temporary and is no more than is necessary for the asset to be used and enjoyed, the asset remains a chattel.

Where a property is leased, property law distinguishes between tenant’s fixtures and landlord’s fixtures. A tenant’s fixture is one installed by the tenant that may be removedby the tenant during or at the end of the lease. For example shop fittings are frequently installed on this basis. This distinction is not relevant for the fixtures legislation.The rules on fixtures apply to both tenant’s and landlord’s fixtures.

Normally a person has to satisfy the ownership condition CA23010 in order to be able to claim PMAs on an asset. In law, a fixture belongs to the freeholder of the land. This means that only the freeholder can satisfy the ownership condition and claim PMAs. For example, a leaseholder who incurs capital expenditure on a fixture is not the owner of the fixture and so cannot claim PMAs. The case of ‘Stokes v Costain Property Investments’ (57 TC 688) confirmed this. Costain had a 99 year lease over a property and incurred expenditure installing lifts and central heating that were landlord’s fixtures.The Courts held that Costain had no entitlement to capital allowances because the word belonging (now ownership) in the plant and machinery legislation meant absolute ownership and Costain did not own the lifts.

Special legislation for fixtures was introduced in 1985. It is in Chapter 14 Part 2 CAA01. Broadly, it lets allowances go to a person who incurs expenditure on the provision of a fixture, either on installation or by acquiring an interest in the building or land to which the fixture is attached, provided that allowances do not go to more than one person at the same time. It treats a person who incurs capital expenditure on a fixture as the owner (the ‘virtual’ owner) of the fixture. It prevents anybody else, even the real owner, being treated as the owner of the fixture for PMA purposes CA26050. Actual ownership is irrelevant. A freeholder can only claim PMAs on a fixture if the fixtures legislation treats that person as the owner of the fixture.

Example

Rosebud Developers build Kane House, an office block, and sell the freehold to Xanadu Properties Plc. Xanadu Properties Plc installs central heating. Xanadu Properties Plc grants a long lease of Kane House to Budokan Computers at a premium. Xanadu Properties Plc and Budokan Computers make a joint election under CAA01/S183 (1)(e). The fixtures legislation treats Budokan Computers and nobody else as the owner of the central heating. Xanadu Properties Plc is the true owner of Kane House, including the central heating, but it cannot claim PMAs on it because the fixtures legislation does not treat it as the owner of the central heating.