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Capital Allowances |
15 |
24A.2.2 ‘Belong to’/‘Owned by’ |
Under CAA 1990 the asset had to ‘belong to’ the person incurring the expense in consequence of the payment. This was changed by CA 2001 to the possibly more understandable rule that the asset must be ‘owned by’ that person; the change is meant to be simply stylistic.112 In Stokes v Costain Property Investments Ltd113 a tenant had installed a lift in a leased building. Since the lifts immediately became the property of the landlord under general land law principles, they could not be said to ‘belong to’ the tenant and so the tenant was not entitled to the allowance.114 Further, in Melluish v BMI (No 3),115 the House of Lords held that a lessee has no right to an allowance if he has a right to remove the fixture at some future time, eg at the end of the lease, but which fixture has become the property of the landlord in the meantime. This is because the concept of a fixture which remains personal property is a contradiction in terms and an impossibility in law;116 and because the argument would make it uncertain whether an asset belonged to—or ceased to belong to—the lessee according to whether he had or had not got a right to remove the asset (eg where the landlord committed a breach of the lease which the tenant then forgave). It follows that a contractual right to remove the fixture cannot prevent it becoming part of the land and so ceasing to belong to the installer. |
The words ‘in consequence of’ were held to be satisfied where a payment was made by the taxpayer to induce the holder of an option to reacquire the property to release that option.117 These words too form no part of CAA 2001 which refers simply to capital expenditure incurred on the provision of plant of machinery.118 |
In Melluish the taxpayer leased central heating, boilers, lifts and similar equipment to local authorities. The items were installed in buildings owned by the local authorities. In so far as Melluish decided that equipment-lessors could obtain allowances under the special rules introduced to reverse Costain (see p 469), where plant was leased to non-taxpayers such as charities or local authorities, the decision was reversed by FA 1997—save where the lessor had an interest in the land.119 |
24A.2.2.1 Reversing Costain: The Fixtures Rules |
The situation resulting from Stokes v Costain was unjust and a new scheme was introduced for expenditure incurred in 1984.120 A fixture is treated as owned by the lessee (L) (or similar person) who incurred the expenditure in providing the plant or machinery for the purposes of a trade carried on by L (or for leasing otherwise than in the course of a trade) if (i) the plant or machinery becomes in law a part of the land and (ii) at that time L has an interest in the relevant land.121 The rules also apply where the plant becomes a fixture before |