Fixtures are Plant and Machinery that have been permanently fixed to a building or land and enhances the value of the building or land. Plant and Machinery Allowances (PMA) can be claimed on the fixtures, and such claims can be of substantial amounts. What this means is that substantial tax savings can be gained by persons who are entitled to claim the allowances.
It is in this context that the issue of who can claim PMA on the fixtures becomes important. Land and buildings can be leased to a third party who then carries on some qualifying activity using the leased asset. Would such a third party be entitled to claim PMA on fixtures that they do not own?
There is also the issue of the lessee installing a fixture at the person’s own cost. Once this fixture has become a permanent (and not easily removed) part of the building or land, who is the owner of the fixture?
As a rule, PMA can be claimed only by the owner of the plant and machinery. In normal legal sense, the owner of fixtures is the owner of the land or building, i.e. the lessor in case of a lease. However, according to Section 176(1) of Capital Allowances Act 2001, if the lessee has incurred capital expenditure on the plant and machinery that has become a fixture, that person is treated as the owner of the fixture entitled to claim PMA.
Different kinds of elections can be made by the lessee and lessor acting together under which one or the other of these persons can claim PMA. Different rules apply for long-term leases. One major condition is that the two persons should not be persons connected with each other (the presumption being that connected persons might be acting in concert to avoid or minimize tax burden). We will look at these elections in separate articles.