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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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PMA: Fixtures: Cessation of ownership of fixtures: qualifying interest

CAA01/S188 - S189

Cessation of ownership is a disposal event for PMAs CA23240.Since the person who gets PMAs on a fixture is not the true owner of the fixture but the person that is treated as owning it (the virtual owner) actual cessation of ownership is no use as a disposal event for fixtures. The other disposal events work normally. There is legislation in Sections 188 - 189 that says when you should treat the virtual owner of a fixture as ceasing to own it. This is how the legislation works. It says when the virtual owner of a fixture ceases to have the qualifying interest. When the virtual owner of a fixture ceases to have the qualifying interest that person is treated as ceasing to be the owner of the fixture at the time that ownership of the qualifying interest ends. This means that the virtual owner has to bring a disposal value to account when ownership of the qualifying interest ends.

These are the general rules about the qualifying interest:

  1. Where a person with an interest in the relevant land has incurred expenditure on a fixture CA26150 the qualifying interest is the interest in the relevant land.
  2. Where a person who buys an interest in land that contains a fixture makes a payment for the fixture CA26250 the qualifying interest is the interest in the relevant land.
  3. Where a person who buys an interest in land that contains a fixture previously let under an equipment lease makes a payment to discharge the lessee’s obligations CA26300 the qualifying interest is the interest in the relevant land.
  4. Where an incoming lessee has paid a premium for land that includes a fixture CA26350 the qualifying interest is the incoming lessee’s lease.

The general rules do not work in some situations. These are the rules for special cases:

  • If the qualifying interest is an agreement to acquire an interest in land that is subsequently transferred or granted, the interest that is transferred or granted becomes the qualifying interest.

Example  Xanadu Properties owns Kane House. It grants a lease to Budokan Computers.

If Budokan Computers installs air conditioning while it has an agreement to acquire alease of Kane House the agreement is the qualifying interest for the air conditioning.When it is granted a lease of Kane House the lease becomes the qualifying interest.

  • If the qualifying interest ceases to exist because it is merged with another interest, the interest with which it is merged becomes the qualifying interest. For example, if the qualifying interest is a lease and the leaseholder acquires the freehold the freehold interest becomes the qualifying interest.

Example  Budokan Computers has a lease of Kane House when it installs air conditioning so the lease is the qualifying interest for the air conditioning. If it buys the freehold of Kane House the freehold becomes the qualifying interest for the air conditioning.

  • If the qualifying interest is a lease and a new lease of the relevant land is granted when it terminates, the new lease becomes the qualifying interest.

Example  Budokan Computers’ lease of Kane House is the qualifying interest for the air conditioning in the building. The lease expires and Budokan Computers are granted a new lease. The new lease becomes the qualifying interest for the air conditioning.

  • If the qualifying interest is a licence and on its termination a new licence to occupy the relevant land is granted to the licensee, the new licence becomes the qualifying interest.

Example  Budokan Computers have a licence to occupy Kane House. The licence is the qualifying interest for the air conditioning. The licence terminates and a new licenceis granted to Budokan Computers. The new licence becomes the qualifying interest.

  • If the qualifying interest is a lease and the lessee remains in possession of the relevant land after the lease terminates with the lessor’s consent without a new lease being granted, the qualifying interest continues.

Example  Budokan Computers’ lease of Kane House is the qualifying interest for the air conditioning in the building. The lease expires and Budokan Computers stay inpossession of Kane House with the consent of Xanadu Properties, the lessor. The qualifying interest continues.