Capital allowances for fixtures depend on financier ownership rights, but tenant proprietary rights can defeat claims on council-house heating.

Capital allowances for fixtures turned on whether equipment fixed to land could still be treated as belonging to finance companies where they retained contractual rights to rent, repossession, severance and return. The analysis distinguished between fixtures on local authority land, where those rights supported ownership for allowance purposes, and central heating installed in occupied council houses, where tenants' legal estates prevented effective enforcement of the financiers' rights and the equipment was treated as no longer belonging to them. The discussion also addresses the transitional rules in the Finance Act 1985, concluding that Schedule 17 did not preserve allowances for the disputed heating expenditure.

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Issues: (i) Whether plant and machinery installed on local authority land, but leased back under equipment leases, 'belonged' to the finance companies so as to qualify for writing-down allowances under section 44(1) of the Finance Act 1971; (ii) whether central heating installed in occupied or shortly-to-be-let council houses remained eligible for allowances, notwithstanding the tenants' proprietary rights; (iii) whether, for expenditure incurred after 11 July 1984, the transitional provisions in section 59 and Schedule 17 to the Finance Act 1985 applied to the expenditure.

Issue (i): Whether plant and machinery installed on local authority land, but leased back under equipment leases, 'belonged' to the finance companies so as to qualify for writing-down allowances under section 44(1) of the Finance Act 1971.

Analysis: The equipment became fixtures as part of the local authority's land, and contractual wording could not prevent that legal consequence. But the question under section 44(1) was not ownership of the land; it was whether the equipment could be described, in ordinary language, as belonging to the finance companies. The companies paid for the equipment, retained contractual rights to rent and repossession, and were entitled on termination to require severance and return, even if the items might then have limited commercial value. The decisive factor was that the local authority had no right to keep the equipment beyond the term and payment of rent.

Conclusion: The plant and machinery installed on local authority land belonged to the finance companies for the purposes of section 44(1), so allowances were available in respect of the miscellaneous installations.

Issue (ii): Whether central heating installed in occupied or shortly-to-be-let council houses remained eligible for allowances, notwithstanding the tenants' proprietary rights.

Analysis: Council tenants held legal estates and were bona fide purchasers for value without notice of the equipment leases. The landlord council had no enforceable power, under the tenancy terms or the Housing Act 1985, to enter and remove central heating equipment merely to satisfy the finance companies' contractual rights. The equipment could not therefore be treated as still belonging to the companies once installed in council houses occupied by tenants, and any allowance on vacant houses let shortly thereafter would be extinguished by balancing charge when the property was let.

Conclusion: The finance companies were not entitled to capital allowances in respect of central heating installed in council houses.

Issue (iii): Whether section 59 and Schedule 17 to the Finance Act 1985 applied to expenditure incurred after 11 July 1984 so as to preserve allowances for the finance companies.

Analysis: Schedule 17 only assists where the fixture would, under paragraph 2, be treated as belonging to a person with a relevant interest in the land. A local authority, being exempt from income tax and corporation tax, could not satisfy that statutory scheme for the purpose of paragraph 3. The expenditure on the disputed central heating also could not be brought within the saving provisions by reference to any earlier lease or agency arrangement on the facts found.

Conclusion: Schedule 17 to the Finance Act 1985 did not assist the finance companies in relation to the central heating expenditure.

Final Conclusion: The appeal succeeded only in relation to the council-house central heating items and failed as to the remaining installations, so the commissioners' decision was reversed only to that limited extent.

Ratio Decidendi: For capital allowance purposes, equipment fixed to land may still 'belong' to the financier if the financier retains a contractual right to repossession and severance, but that approach does not apply where third-party proprietary rights, such as a tenant's legal estate, prevent effective enforcement of those rights.

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