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Capital Allowances Act 2001

Chapter 3: The relevant interest in the building

995.This Chapter defines the “relevant interest” in a building for the purposes of Part 3. Allowances are given to the person who holds the relevant interest in a building. See section 271(3).

996.Section 286 gives the general rule. The relevant interest is the interest in the building held by the person who incurred the construction expenditure on the building.

997.Section 287 deals with cases in which a person becomes entitled to an interest in a building as a result of expenditure on its construction. The interest is treated as acquired when the expenditure was incurred.

998.Section 288 deals with a lease or other subordinate interest created out of the relevant interest.

999.Section 289 deals with a relevant interest which is a lease which is then extinguished. The interest into which it merges becomes the relevant interest.

1000.Sections 290 and 291 allow the creation of a long lease to be treated as if it were a sale of the relevant interest out of which it was created.

Section 286: General rule as to what is the relevant interest

1001.This section is based on section 20(1) and (2) of CAA 1990. It gives the basic definition of “relevant interest” for this Part. It also indicates some of the ways in which that definition may be modified.

Section 287: Interest acquired on completion of construction

1002.This section is based on section 21(2) of CAA 1990. It deals with the case of a person who only gets an interest in a building as a result of incurring expenditure on its construction. For example, a person who incurs expenditure on constructing an industrial building may not get a lease until construction is completed.

1003.There is a minor change. CAA 1990 caters only for the interest the person holds on completion of the building. This could be harsh if there is a gap between completion and the interest being acquired. So this section provides for an interest acquired as a result of completion. See Change 34 in Annex 1.

Section 288: Effect of creation of subordinate interest

1004.This section is based on part of section 20(3) and section 11(5) of CAA 1990. It deals with the case in which a subordinate interest is created out of an existing relevant interest. The relevant interest remains unchanged. Subsection (2) provides a signpost to an exception to this rule at section 290.

Section 289: Merger of leasehold interest

1005.This section is based on part of section 20(3) of CAA 1990. It provides that if the relevant interest is a lease which ends either:

  • on being surrendered to the person holding the reversion; or

  • by the person holding the lease acquiring the reversion,

then the interest into which the lease has merged is the relevant interest.

Sections 290 and 291: Election to treat grant of lease exceeding 50 years as sale

1006.These two sections are based on section 11 of CAA 1990. They allow a lessor and lessee to elect that a long lease granted out of a relevant interest becomes the relevant interest as if it were a sale of the relevant interest to the lessee. The effect of this is broadly that the lessee rather than the lessor becomes entitled to industrial buildings allowances.

1007.An election is made by way of “notice”. See section 577.

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