Capital Allowances Act 2001 section 290

Election to treat grant of lease exceeding 50 years as sale

Section 290 allows a lessor and lessee to jointly elect that the grant of a long lease (over 50 years) on a building is treated as a sale of the relevant interest, so that the lessee rather than the lessor becomes entitled to capital allowances.

• Where a lease exceeding 50 years is granted out of the relevant interest in a building on which construction expenditure has been incurred, the lessor and lessee may jointly elect for the lease to be treated as a sale of that interest.
• If the election is made, the grant of the lease is treated as a sale of the relevant interest from the lessor to the lessee, taking effect at the time the lease begins, with any capital sum paid by the lessee treated as the purchase price.
• Upon election, the interest out of which the lease was granted ceases to be the relevant interest, and the leasehold interest becomes the new relevant interest — meaning the lessee, not the lessor, can claim capital allowances going forward.
• The election covers all qualifying construction expenditure relating to the building or buildings that are the subject of the lease.