Fixtures and capital allowances: true ownership, comprehensive Schedule 17 rules, and paragraph 3 relief for equipment lessors

For fixtures incorporated into a lessee's land, "belongs" in section 44 of the Finance Act 1971 required true ownership in law or equity, so retained contractual rights of removal or repossession were insufficient. The Finance Act 1985 regime in section 59 and Schedule 17 was treated as a comprehensive code for UK fixtures, displacing the former section 44 approach. Rights reserved by the taxpayers did not amount to an interest in land for paragraph 2, but paragraph 3 relief remained available to equipment lessors where the statutory conditions, including election, were satisfied, even if the end-user was tax-exempt. Timing of expenditure under the transitional rules depended on when liability was finally fixed on the facts.

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Issues: (i) Whether plant incorporated into the lessee's land could be said to "belong" to the taxpayer companies for the purposes of section 44(1) of the Finance Act 1971. (ii) Whether section 59 and Schedule 17 to the Finance Act 1985 formed a comprehensive code for capital allowances on fixtures. (iii) Whether the taxpayers' rights constituted an "interest in land" within paragraph 2 or enabled relief under paragraph 4 of Schedule 17. (iv) Whether the taxpayers qualified for allowances as equipment lessors under paragraph 3 of Schedule 17. (v) When the expenditure was incurred for the purposes of the transitional application of Schedule 17.

Issue (i): Whether plant incorporated into the lessee's land could be said to "belong" to the taxpayer companies for the purposes of section 44(1) of the Finance Act 1971.

Analysis: Fixtures fixed to land become part of the land and, absent a relevant statutory rule, are owned in law by the owner of the land. Contractual provisions reserving rights of removal or repossession do not prevent the chattel from becoming a fixture. The limited contractual and equitable rights retained by the financiers did not amount to ownership in law or equity, and the statutory word "belongs" was construed as requiring true ownership rather than contingent or limited rights of enjoyment.

Conclusion: The plant did not belong to the taxpayer companies for the purposes of section 44(1); this issue was decided against the taxpayers.

Issue (ii): Whether section 59 and Schedule 17 to the Finance Act 1985 formed a comprehensive code for capital allowances on fixtures.

Analysis: The language of section 59(1), together with the detailed and comprehensive structure of Schedule 17, pointed to a complete regime for United Kingdom fixtures. The alternative construction would revive the uncertainty of the former section 44 regime and produce anomalous results where Schedule 17 made entitlement dependent on elections or specific categories. The reference to foreign fixtures did not displace that conclusion.

Conclusion: Section 59 and Schedule 17 constituted a comprehensive code for fixtures in the United Kingdom; this issue was decided in favour of the Revenue.

Issue (iii): Whether the taxpayers' rights constituted an "interest in land" within paragraph 2 or enabled relief under paragraph 4 of Schedule 17.

Analysis: The rights reserved to the taxpayers were neither an easement in English law nor a servitude in the relevant sense for Schedule 17. Paragraph 1(2)(d) was directed to the English law concept of easement and the Scots law equivalent of servitude, and the taxpayers' contractual rights to remove or repossess fixtures did not satisfy that description. Nor did the post-fixture acquisition argument under paragraph 4 assist them.

Conclusion: The taxpayers had no qualifying interest in land under paragraph 2 or paragraph 4; this issue was decided against the taxpayers.

Issue (iv): Whether the taxpayers qualified for allowances as equipment lessors under paragraph 3 of Schedule 17.

Analysis: Paragraph 3 applied where an equipment lessor incurred capital expenditure for leasing and, if the lessee had incurred it, the fixture would have been treated as belonging to the lessee under paragraph 2. The expression "for material purposes" was read as serving the purposes of Schedule 17 itself, not as requiring the lessee to be taxable or entitled to an allowance. The status of the end-user as a tax-exempt local authority did not defeat the lessor's claim. The necessary election and other conditions, where satisfied, brought the taxpayers within paragraph 3.

Conclusion: The taxpayers were entitled to relief under paragraph 3 where the statutory conditions, including election, were met; this issue was decided in favour of the taxpayers.

Issue (v): When the expenditure was incurred for the purposes of the transitional application of Schedule 17.

Analysis: Liability could arise before completion of the lease schedule if the taxpayer had given unconditional approval of the purchase and the terms to be included in the schedule had already been finally agreed. In other cases, liability was incurred only on completion of the lease schedule when the contractual obligation to reimburse first arose. The point required case-by-case factual determination rather than a single universal answer.

Conclusion: The declaration was set aside and the matter remitted for factual determination in each case; this issue was not finally resolved on a uniform basis.

Final Conclusion: The former section 44 claim failed, the post-1984 statutory regime in Schedule 17 was treated as comprehensive, paragraph 3 relief remained available where its conditions were met, and the timing of expenditure required remittal for individual findings.

Ratio Decidendi: For fixtures, "belongs" in section 44 means true ownership in law or equity, and under the 1985 regime Schedule 17 provides the governing code for United Kingdom fixtures while paragraph 3 can apply to equipment lessors even where the end-user is tax-exempt.

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