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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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PMA: Fixtures: Incoming lessee

CAA01/S183 - S184

Sometimes a person (the lessee) who pays a premium that is capital expenditure for a lease of land that includes a fixture is treated as the owner of the fixture.

When these conditions are satisfied:

  • if the person granting the lease (the lessor) was within the charge to tax, the lessor was entitled to PMAs on the fixture, or
  • if the lessor had been within the charge to tax, the lessor would have been entitled to PMAs on the fixture,

the lessor and the lessee can make an election. The election transfers deemed ownership, and thus entitlement to allowances, from the lessor to the incoming lessee. The fixture is treated as disposed of by the lessor and acquired by the lessee for the part of the premium that relates to the fixture.

An election under CAA01/S183 must be made by notice to the HM Revenue & Customs within two years of the date on which the lease takes effect. An election may not be made if the lessor and lessee are connected as defined in S575 CA11630.

Example Xanadu Properties owns the freehold of Kane House and installs central heating on which it claims PMAs before it grants a lease to Budokan Computers at a premium. If Xanadu and Budokan make an election under Section183, Xanadu is treated as having disposed of the central heating and Budokan as having acquired it for the part of the premium that relates to the central heating.

If:

  • the person granting the lease (the lessor) was not entitled to PMAs or,
  • even if the lessor had been within the charge to tax, the lessor would not have been entitled to PMAs,

then the lessee is treated as owning the fixture. This applies provided that the fixture has not previously been used for the purposes of a trade by the lessor or any person connected to the lessor as defined in ICTA88/S839 (see CG14580 onwards). The sort of case where this can happen is where the interest held by the lessor is held on trading account. This does not apply if, when the interest is acquired, the same or some other person is entitled to and claims or has claimed capital allowances on the fixture by virtue of some other interest in land (for instance a superior or inferior interest).

Example Kane House was constructed by Rosebud Developers, a property developer, which installs central heating. Rosebud Developers decides to retain the freehold of Kane House and grants a 50-year lease to Budokan Computers at a premium. Budokan Computers can claim capital allowances on the part of the premium that relates to the central heating.

Rosebud Developers later grants a 999-year lease of Kane House, to which the Budokan lease is reversionary, to Xanadu Properties at a premium. Section 183 does not apply as allowances are being claimed by Budokan Computing. Xanadu Properties cannot claim allowances on the central heating.