How does section 270IG treat lease renewals and holdovers for structures and buildings allowances?

Section 270IG treats a lease as continuing where it is renewed, extended, or replaced. If a lessee remains in possession after termination with the lessor's consent (holding over), the original lease is deemed to continue. This preserves the lessee's entitlement to structures and buildings allowances without interruption through routine lease events.

What happens under section 270IG when a lessor pays a sum to the lessee on lease termination?

Where a lessor pays the outgoing lessee a sum in respect of the building or structure on termination, section 270IG deems the lease to have ended by surrender in consideration of that payment. This characterisation is significant because a surrender constitutes a disposal of the relevant interest, potentially triggering balancing adjustment rules elsewhere in the legislation.

How does section 270IG treat a new lease granted to a different lessee who pays the former lessee?

Section 270IG deems the two leases to be a single continuous lease assigned from the former lessee to the new lessee in consideration of the payment. This simplifies the allowance calculations by treating the transaction as a straightforward assignment, preserving the chain of relevant interests and applying standard disposal value rules to the outgoing lessee.

Why are the lease continuity rules in section 270IG important for structures and buildings allowances?

Entitlement to structures and buildings allowances depends on holding a relevant interest in the building. Leases are a common form of relevant interest, and without these deeming rules, routine events such as renewals, holdovers, or regrants could disrupt or extinguish allowance entitlement. Section 270IG preserves continuity and certainty for claimants.

Capital Allowances Act 2001 section 270IG

Treatment of leases

Section 270IG sets out how leases of buildings and structures are treated for the purposes of structures and buildings allowances, ensuring continuity of the allowance claim through various lease events.

A lease is treated as continuing where it is renewed, extended, replaced, or the lessee remains in possession after termination with the lessor's consent
Where a lessee exercises an option under the original lease to obtain a new lease, the new lease is treated as a continuation of the original
Where a lessor pays a sum to the lessee on termination in respect of the building or structure, the lease is treated as having ended by surrender in consideration of that payment
Where a new lease is granted to a different lessee who pays a sum to the former lessee, the two leases are treated as a single lease assigned from the former lessee to the new lessee in consideration of that payment

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