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HMRC internal manual

Capital Allowances Manual

From
HM Revenue & Customs
Updated
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Business Premises Renovation Allowance: The relevant interest

CAA01/ S360E and S360F

The basic rule is that the relevant interest in a qualifying buildingin relation to qualifying expenditure is the interest in the building to which the personwho incurred the qualifying expenditure was entitled when the expenditure was incurred.

If the person who incurs the qualifying expenditure has more than one interest in thebuilding the relevant interest is the interest that is reversionary on the others.

Example

Ollie owns the freehold of a qualifying building. He leases the building to Maureen on a49 year lease and then leases it back on a 10 year lease. If Ollie incurs qualifyingexpenditure on the building after the lease and leaseback the relevant interest inrelation to that qualifying expenditure is the freehold interest because his freeholdinterest is reversionary on his leasehold interest.

If the person who holds the reversionary interest creates a lease or other interestsubordinate to the relevant interest, the relevant interest is not affected.

Example

As in the example above Ollie owns the freehold of a qualifying building. He incursqualifying expenditure and then leases the building to Maureen on a 49 year lease. Therelevant interest in relation to the qualifying expenditure is still the freehold interestafter the creation of the lease.

If the relevant interest is a leasehold interest which is extinguished because the personholding it acquires the interest that is reversionary on it, the interest into which theleasehold interest merges becomes the relevant interest.

Example

Tracey has a leasehold interest in a qualifying building and that leasehold interest isthe relevant interest in relation to the qualifying expenditure on converting it intoqualifying business premises. She decides to buy the freehold of the building. Once shehas bought the freehold the freehold becomes the relevant interest.

If the person who incurs the expenditure on converting a qualifying building intoqualifying business premises is entitled to an interest in the building on or as a resultof the conversion the person is treated as having had that interest when the expenditurewas incurred. For example, if a person has an agreement for a lease when they incur thequalifying expenditure and the lease is granted once the expenditure has been incurred thelease is the relevant interest.

Example

Dylan incurs expenditure on converting a qualifying building into a wine bar. While heincurs the expenditure he has an agreement for a 999 year lease of the wine bar onceconversion is complete. Dylan does the conversion work and is granted the 999 year lease.The 999 year lease is the relevant interest in relation to Dylan’s conversionexpenditure.