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HMRC internal manual

Capital Allowances Manual

Cessation of ownership of fixtures - qualifying interest in special cases

CAA01/S189

This page sets out the rules that apply to identify the ‘qualifying interest’ in special cases. 

1. Qualifying interest is an agreement to acquire an interest in land

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 a lease 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.

2. Qualifying interest ceases to exist

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.

3. Qualifying interest is a lease and a new lease of the relevant land is granted

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.

4. Qualifying interest is a licence

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 licence is granted to Budokan Computers. The new licence becomes the qualifying interest.

5. Qualifying interest is a lease and the lessee remains in possession

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 in possession of Kane House with the consent of Xanadu Properties, the lessor. The qualifying interest continues.