Capital Allowances Act 2001 section 498

Merger of leasehold interest

Section 498 deals with what happens to the relevant interest for capital allowance 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 interest above it.
• When the leasehold interest is surrendered to the landlord, it ceases to exist and merges into the superior interest.
• When the leaseholder purchases the reversionary interest (for example, the freehold), the lease merges into that superior interest and is similarly extinguished.
• In either case, the interest into which the leasehold merges automatically becomes the new relevant interest for capital allowance purposes from the point the leasehold is extinguished.