Capital Allowances Act 2001 section 367

Merger of leasehold interest

Section 367 deals with what happens to the relevant interest for capital allowances purposes when a leasehold interest comes to an end by merging into a superior interest.

• When a lease is surrendered or the leaseholder acquires the reversionary interest (e.g. the freehold), the superior interest into which the lease merges becomes the new relevant interest for capital allowances purposes.
• If the person who owns the merged interest is different from the person who held the lease, that new owner is treated as having acquired the relevant interest, ensuring they receive the correct allowances.
• These rules do not apply where a new lease of the whole or part of the related agricultural land is granted to take effect when the former lease ends.
• The effect is to preserve the continuity of capital allowances through a change in the nature of the property interest, so that allowances are not lost simply because a lease has been extinguished.