Example
L Limited owns the fee simple estate in a building. The company incurs capital expenditure on the provision of a fixture for the purposes of its qualifying activity. Suppose, however, that the company does not make a claim in respect of its expenditure (as defined in section 202).
Suppose also that H Limited has a leasehold interest in the building and that H Limited assigns this interest to N Limited. Provided that N’s consideration for the lease includes a capital sum that falls to be treated as expenditure on the provision of the fixture, then N Limited would be treated as the owner of the fixture under this section.
However, if L Limited were to make a claim then subsections (2) and (3) of this section would prevent N Limited from being treated as the owner of the fixture.
Section 182: Purchaser of land discharging obligations of equipment lessee
659.This section is also based on part of sections 54 and 56A of CAA 1990. The section provides an equivalent to the previous section if the fixture was let under an equipment lease. It deals with cases in which the person acquiring the interest in the relevant land pays a capital sum to discharge the obligations of the equipment lessee under the equipment lease.
660.The basic rule is dealt with in subsection (1). Subsections (2) and (3) provide that subsection (1) does not apply if another person is treated as the owner of the fixture in respect of a different interest in the relevant land.
661.This section does not deal with cases in which the equipment lessor is treated as the owner of the fixture under section 177. Instead, such situations are dealt with in sections 192 and 195.
Section 183: Incoming lessee where lessor entitled to allowances
662.This section is based on section 55 of CAA 1990. It deals with cases in which a lease is granted in the relevant land and the lessor is entitled to an allowance. It also covers cases in which the lessor is not entitled to an allowance simply because the lessor is not within the charge to tax. The section provides when the new lessee may be treated as the owner of a fixture.
663.Because the section effectively transfers deemed ownership from the lessor to the lessee it is necessary for both to make an election for these provisions to apply.
664.One of the conditions for this section to apply is that the lessor is entitled to an allowance in respect of the fixture for the chargeable period in which the lease is granted. CAA 1990 deals with this in section 55(1)(b). However, it includes the words “apart from section 57”; section 57 deals with fixtures treated as ceasing to belong to a person. These words have no effect and have not been rewritten.
Section 184: Incoming lessee where lessor not entitled to allowances
665.This section is based on part of sections 56 and 56A of CAA 1990. It is similar to section 183 but deals cases in which the lessor is not entitled to an allowance (or would not be entitled even if the lessor were within the charge to tax).
666.As the lessor is not giving up ownership in such situations, there is no requirement for an election. However, a restriction applies if another person is treated as the owner of the fixture in respect of a different interest in the relevant land. This is dealt with in subsections (2) and (3).
Section 185: Fixture on which a plant and machinery allowance has been claimed
667.This section is based on section 56B of CAA 1990. It restricts the amount of expenditure that may be taken into account if a previous “owner” has claimed a plant and machinery allowance in respect of the fixture.
668.The broad effect of this section is to restrict the amount of future claims to the lowest disposal value brought into account by previous owners. This provision ensures that taxpayers cannot artificially inflate the amount attributed to a fixture on which plant and machinery allowances may be available at the expense of land on which plant and machinery allowances are not available. The limit is known as the “maximum allowable amount”.
669.Subsection (2)(b) ensures that if excessive expenditure has already been taken into account, then an adjustment should be made.
670.Subsection (3) provides that the “maximum allowable amount” may be increased to the extent that any of the new qualifying expenditure falls within section 25.
671.Subsection (4) ensures that if more than one disposal event has occurred, then the section only considers the most recent event. Subsection (5) makes it clear that a person’s qualifying expenditure may be restricted by reference to a disposal value brought into account by the same person in respect of a previous period of ownership.
672.If there is a sale of the plant or machinery as a chattel between unconnected persons, then subsections (6) and (7) provide that taxpayers may ignore ownership and disposal values in respect of any time before such a sale.
Section 186: Fixture on which an industrial buildings allowance has been made
673.This section is based on section 56C of CAA 1990. It restricts the amount of expenditure that may be taken into account if a person has claimed an industrial buildings allowance in respect of the fixture.
674.There is a general rule in section 9 that a fixture on which an industrial buildings allowance has been claimed may not be subject to a claim for plant and machinery allowances. However, this rule is relaxed if this section applies.
675.If this section applies, the qualifying expenditure is restricted to a proportion of the residue of the expenditure (as defined in section 313). This proportion is the proportion of the consideration that relates to the fixture on the transfer from the former owner.
Section 187: Fixture on which a research and development allowance has been made
676.This section is based on section 56D of CAA 1990. It restricts the amount of expenditure that may be taken into account if a person has claimed a R&D allowance in respect of the fixture.
677.As in the previous section, the rule in section 9 is relaxed if this section applies.
678.If this section applies, the qualifying expenditure is restricted to a proportion relating to the fixture of the Part 6 expenditure (or, if lower, the disposal value brought into account).
Section 188: Cessation of ownership when person ceases to have qualifying interest
679.This section is based on part of section 57(2) to (4) of CAA 1990. It provides that a taxpayer is treated as ceasing to own a fixture when ceasing to have the “qualifying interest”.
Section 189: Identifying the qualifying interest in special cases
680.This section is based on part of section 57(3) of CAA 1990. It provides that in certain circumstances, a person is not treated as ceasing to own a fixture even when ceasing to own the “qualifying interest”.
681.These circumstances broadly apply when the person acquires another interest in the relevant land which replaces the previous “qualifying interest”. In such cases, the new interest becomes the qualifying interest.
Section 190: Cessation of ownership of lessor where section 183 applies
682.This section is based on section 57(5) of CAA 1990. It applies if an incoming lessee begins to be treated as the owner of a fixture under section 183.
683.One of the conditions for section 183 to apply is that the lessor is treated as the owner of the fixture. This section provides that when the lessee begins to be treated as the owner of the fixture, the lessor must be treated as ceasing to be the owner.
Section 191: Cessation of ownership on severance of fixture
684.This section is based on section 57(7) of CAA 1990. It deals with cases in which a fixture is permanently severed from the relevant land.
685.In such cases, the person who was previously treated as owning the fixture is treated as ceasing to own it. However, this does not apply if the person becomes the actual owner of the plant or machinery as a result of the severance.
Section 192: Cessation of ownership of equipment lessor
686.This section is based on part of section 58(1) and (5) of CAA 1990. It provides for cases in which an equipment lessor is to be treated as ceasing to own the fixture.
687.This section applies if either:
the equipment lessor assigns the rights under the equipment lease; or
the equipment lessee’s financial obligations are discharged.
688.Subsection (3) provides that references to “equipment lessee” include any person in whom the financial obligations under the equipment lease may have been vested.
Section 193: Acquisition of ownership by lessor or licensor on termination of lease or licence
689.This section is based on section 57(6) of CAA 1990. It deals with cases in which a person is treated as ceasing to be the owner of a fixture because of the termination of the person’s interest in the relevant land under section 188.
690.The section applies if the interest is a lease or a licence. In such cases the lessor (or licensor) under the lease (or licence) is treated as the owner of the fixture from that time.
Section 194: Acquisition of ownership by assignee of equipment lessor
691.This section is based on section 58(3) and part of section 58(2) of CAA 1990. It deals with cases in which, under section 192, an equipment lessor assigns the rights under the equipment lease.
692.This section provides that the assignee is treated as being the owner of the fixture. Further, the assignee is treated as incurring on the provision of the fixture any consideration given for the assignment.
693.Subsection (2) provides that the assignee is subsequently treated as an equipment lessor for the purposes of sections 192 and 195 and future operations of subsection (1) of this section.
Section 195: Acquisition of ownership by equipment lessee
694.This section is based on part of section 58(4) and (5) of CAA 1990. It provides that an equipment lessee may be treated as being the owner of a fixture. This section applies if:
in a case dealt with by section 192, it is the equipment lessee who discharges the equipment lessee’s financial obligations under the equipment lease; and
the equipment lessee does so by paying a capital sum.
695.Subsection (2) provides that references to “equipment lessee” include any person in whom the financial obligations under the equipment lease may have been vested.
Section 196: Disposal values in relation to fixtures: general
696.This section is based on sections 57(1) and 59 and part of section 58(2), (4) and (5) of CAA 1990. It determines the basic disposal value to be taken into account in different scenarios in respect of a fixture.
697.Subsection (1) provides a Table showing the different disposal values depending on the circumstances. Item 2 of the Table refers to a condition that needs to be satisfied. The alternate legs of this condition are in subsection (2).
698.Subsection (3) makes it clear that disposals dealt with by item 1 or 5 are subject to an election being made under section 198 or 199.
699.Subsection (4) provides that references to “equipment lessee” include any person in whom the financial obligations under the equipment lease may have been vested.
700.Subsection (5) makes it clear that a taxpayer may need to bring a disposal value into account under the rules of Chapter 5 because of an event not covered by this Chapter.
701.Subsection (6) makes it clear that these disposal values are subject to section 197 which deals with avoidance cases.
702.Section 59(11) of CAA 1990 has been rewritten in paragraph 41 of Schedule 3.
Section 197: Disposal values in avoidance cases
703.This section is based on section 59A(1) to (3) of CAA 1990. It substitutes a “notional written-down value” for the disposal value in avoidance cases.
704.Subsection (1)(d) refers to a taxpayer obtaining a “tax advantage”. This term is defined in section 577(4).
705.The paragraph also refers to a disposal event which “is part of, or occurs as a result of” a scheme or arrangement. Section 59A(1)(c) of CAA 1990 uses the words “is comprised in, or occurs in pursuance of”. The wording in this Act is simpler than that in CAA 1990 without changing its meaning.
706.Subsection (3) uses a formula to define the “notional written-down value” in line with the similar provisions elsewhere in this Act. See Note 24 in Annex 2.
Section 198: Election to apportion sale price on sale of qualifying interest
707.This section is based on part of section 59B(1) to (4) of CAA 1990. It provides that, in certain circumstances, the parties to a transaction may elect to fix a disposal and acquisition value in respect of a fixture.
708.Subsection (1) ensures that an election under this section may only apply if the disposal event is one for which item 1 of the Table in section 196 would otherwise apply. (This item applies if there is a sale of the qualifying interest, but item 2 of the Table does not apply.)
709.Subsection (2) ensures that the amount fixed by the election is to be used as the disposal value instead of the value determined by item 1. It also ensures that the amount is to be used for other purposes of this Part. In particular, if the purchaser is to claim allowances in respect of the fixture then the election will determine the expenditure treated as incurred. In all cases, this subsection provides that the election must be made jointly by the purchaser and seller.
710.Subsection (3) provides two limits for the amount that may be fixed under an election under this provision. The amount may not exceed the actual sale price. It must also not exceed the amount which was treated as incurred by the seller on the provision of the fixture.
711.Subsection (4) deals with the attribution of any part of the sale price not attributed to the fixture by the election.
712.Subsection (5) provides that an election cannot override a restriction on allowances under section 186 or 187. If appropriate, those sections still apply to limit the purchaser’s expenditure that may be brought into account under the rules for plant and machinery allowances.
713.The subsection also ensures that the seller’s disposal proceeds may still be substituted by the notional written-down value in avoidance cases (see section 197).
Section 199: Election to apportion capital sum given by lessee on grant of lease
714.This section is also based on part of section 59B(1) to (4). It provides that the parties to a transaction may elect to fix a disposal and acquisition value in respect of a fixture in cases dealt with by item 5 of the Table in section 196.
715.Subsection (2) ensures that the amount fixed by the election is to be used as the disposal value instead of the value determined by item 5. It also ensures that the amount is to be used for other purposes of this Part. In particular, if the incoming lessee is to claim allowances in respect of the fixture then the election will determine the expenditure treated as incurred. In all cases, this subsection provides that the election must be made jointly by the lessor and the lessee.
716.Subsection (3) provides two limits for the amount that may be fixed under an election under this provision. The amount may not exceed the actual capital sum incurred by the lessee. It must also not exceed the amount which was treated as incurred by the lessor on the provision of the fixture.
717.Subsection (4) deals with the attribution of any part of the capital sum not attributed to the fixture by the election.
718.Subsection (5) provides that an election cannot override a restriction on allowances under section 186 or 187. If appropriate, those sections still apply to limit the lessee’s expenditure that may be brought into account under the rules for plant and machinery allowances.
719.The subsection also ensures that the lessor’s disposal proceeds may still be substituted by the notional written-down value in avoidance cases (see section 197).
Section 200: Elections under section 198 and 199: supplementary
720.This section is based on section 59B(5) and 59C(6) and part of section 59C(3) of CAA 1990. It provides additional rules that apply to elections under either of the previous two sections.
721.Subsection (2) ensures that an election overrides any apportionment made under sections 562 to 563.
722.Subsection (4) provides for cases in which, after an election is made, circumstances arise which have the effect of reducing the maximum amount that may be fixed under the election (under either section 198(3) or 199(3)). If the reduced value is less than the amount specified by the election, then the election is treated as having specified the lower amount.
