Capital Allowances Act 2001 section 289

Merger of leasehold interest

Section 289 explains what happens to the relevant interest for capital allowances purposes when a leasehold interest is extinguished by merging into a superior interest.

• Where the relevant interest in a property is a leasehold interest, that interest may be extinguished in one of two ways: by surrender or by the leaseholder acquiring the reversionary (superior) interest
• When the leasehold interest is extinguished, the superior interest into which it merges automatically becomes the new relevant interest for capital allowances purposes
• This ensures continuity of capital allowances entitlement even though the original interest no longer exists
• The rule applies regardless of whether the merger arises from a voluntary surrender of the lease or from the leaseholder purchasing the freehold or a longer lease