The basic rule is that the
relevant interest in a qualifying building in
relation to qualifying expenditure is the interest in the building
to which the person who incurred the qualifying expenditure was
entitled when the expenditure was incurred.
If the person who incurs the qualifying expenditure has more
than one interest in the building the relevant interest is the
interest that is reversionary on the others.
Example
Ollie owns the freehold of a qualifying building. He leases
the building to Maureen on a 49 year lease and then leases it back
on a 10 year lease. If Ollie incurs qualifying expenditure on the
building after the lease and leaseback the relevant interest in
relation to that qualifying expenditure is the freehold interest
because his freehold interest is reversionary on his leasehold
interest.
If the person who holds the reversionary interest creates a
lease or other interest subordinate to the relevant interest, the
relevant interest is not affected.
Example
As in the example above Ollie owns the freehold of a
qualifying building. He incurs qualifying expenditure and then
leases the building to Maureen on a 49 year lease. The relevant
interest in relation to the qualifying expenditure is still the
freehold interest after the creation of the lease.
If the relevant interest is a leasehold interest which is
extinguished because the person holding it acquires the interest
that is reversionary on it, the interest into which the leasehold
interest merges becomes the relevant interest.
Example
Tracey has a leasehold interest in a qualifying building and
that leasehold interest is the relevant interest in relation to the
qualifying expenditure on converting it into qualifying business
premises. She decides to buy the freehold of the building. Once she
has bought the freehold the freehold becomes the relevant interest.
If the person who incurs the expenditure on converting a
qualifying building into qualifying business premises is entitled
to an interest in the building on or as a result of the conversion
the person is treated as having had that interest when the
expenditure was incurred. For example, if a person has an agreement
for a lease when they incur the qualifying expenditure and the
lease is granted once the expenditure has been incurred the lease
is the relevant interest.
Example
Dylan incurs expenditure on converting a qualifying building
into a wine bar. While he incurs the expenditure he has an
agreement for a 999 year lease of the wine bar once conversion is
complete. Dylan does the conversion work and is granted the 999
year lease. The 999 year lease is the relevant interest in relation
to Dylan’s conversion expenditure.
