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HMRC internal manual

Capital Allowances Manual

IBA: relevant interest: general rule

Budget 2007 announced a business tax reform package including the gradual withdrawal of IBAs and ABAs over four years. Legislation was introduced in FA08 to give effect to those changes. The phased withdrawal of IBA writing down allowances had effect for chargeable periods ending on or after 1 April 2008 for businesses within the charge to CT and 6 April 2008 for businesses within the charge to IT. There are no IBA writing down allowances for the financial year beginning on 1 April 2011 and subsequent years.


IBA is made to the person who holds the relevant interest in a building.

The construction expenditure incurred on a building defines the relevant interest in that building. The relevant interest in relation to an item of construction expenditure is the interest in the building to which the person who incurred that construction expenditure was entitled when the expenditure was incurred.

There are special rules where the industrial building is a road and the person who constructs it has a highway concession relating to it CA38000.

Since the construction expenditure may be incurred at different times and by different people there may be several relevant interests in a building.

Example Warren builds a factory on land that he owns. The relevant interest for the factory is the freehold interest. If Warren leases the factory to Lowell and Lowell builds an extension, the relevant interest for the extension is Lowell’s leasehold interest. So there are two relevant interests for the factory - Warren’s freehold interest for the factory and Lowell’s leasehold interest for the extension.

A person who constructs a building may be entitled to more than one interest in the building when the construction expenditure is incurred. If so, the relevant interest is the interest that is reversionary on all the others.

Example Douglas builds a factory on land that he owns. He grants a long lease of the factory to Clayton. Douglas’s business expands so that he needs more factory space and he leases the factory back from Clayton. Douglas then builds an extension to the factory. Douglas has both the freehold interest and a leasehold interest in the factory when he builds the extension. The relevant interest in the extension is the freehold interest because the freehold interest is reversionary on the leasehold interest.