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This clause allows lessors to claim capital allowances
on boilers, radiators, heat exchangers and heating controls installed
under the Government’s Affordable Warmth Programme. It applies
to expenditure incurred by lessors after Royal Assent and before
1 January 2008.
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Under the existing rules, no capital allowances
are available on boilers and radiators etc installed in residential
property. These conditions are relaxed for lessors participating
in the Affordable Warmth Programme, allowing a lessor to claim
capital allowances on equipment leased out as part of an approved
scheme under the programme.
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Capital allowances will reduce the amount of tax
that lessors pay on the lease rentals. This will bring down costs,
with savings passed on to the landlords as lower lease rentals.
This will encourage local authority and registered social landlords
to participate fully in the programme.
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DETAILS OF THE CLAUSE
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Subsection (1) provides for new subsections
(1D) to (1H) to be inserted into Section 53 Capital Allowances
Act 1990. These are:
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Section 53(1D) provides for changes to Section
53(1), which will have effect where the conditions of subsection
(1E) are satisfied. Where the conditions are satisfied, the special
rules for fixtures in Section 53(1) are relaxed. This will enable
lessors to claim capital allowances on machinery or plant installed
under the Affordable Warmth Programme in dwelling houses or leased
to non-taxpayers.
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Section 53(1E) contains the conditions that must
be satisfied for Section 53(1D) to have effect. The machinery
or plant must consist or boilers, radiators, heat exchangers or
heating controls that are installed as part of a central heating
or hot water system, and the agreement for the lease must be approved
as part of the Affordable Warmth Programme.
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Section 53(1F) provides that the approval of the
lease as part of the Affordable Warmth Programme may, with the
consent of the Treasury, be given by the Secretary of State or,
for buildings in Scotland, Wales or Northern Ireland, the respective
devolved assembly.
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Section 53(1G) contains provisions that
apply if approval is withdrawn. The approval is deemed never to
have had effect. The subsection provides for the making of all
assessment and amendments to assessments that are necessary as
a consequence of the withdrawal of approval.
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Section 53(1H) requires a person who has made
a return and who becomes aware that anything in the return is
incorrect by reason of the withdrawal of the approval, to give
to an officer of the Board within 3 months of becoming aware notice
of the amendments that are required.
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Subsection (2) provides for a penalty to
be exigible if the person fails to provide the information required
under subsection 53(1H).
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Subsection (3) provides for the clause
to have effect in relation to expenditure incurred by lessors
after Royal Assent and before 1 January 2008.
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BACKGROUND
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Capital allowances allow the cost of capital assets
to be written off against taxable profits. They take the place
of depreciation in the commercial accounts, which are not allowed
for tax.
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There are special rules for fixtures. They apply
where machinery and plant is fixed in or to a building or any
other land so as to become, in law, part of the building or land.
They set out a comprehensive code to determine to whom the fixtures
are deemed to belong, and thus who is entitled to claim capital
allowances. Broadly speaking, if a person incurs capital expenditure
on the provision of a machinery or plant fixture, it is treated
as belonging to that person even if legal ownership lies elsewhere.
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The special rules for fixtures extend to lessors
of equipment who do not have an interest in the land in, or on
which the machinery or plant is fixed. But, under the existing
rules, a lessor cannot claim capital allowances if the machinery
or plant is leased for use in a dwelling house or to a person
who does not use the equipment in a trade (including a letting
business) that is taxable in the UK.
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The Government’s Affordable Warmth Programme
aims to support, over the next 7 years, the installation of efficient
central heating systems in up to 1 million low income homes. It
is underpinned by public spending, and supplemented by a public/
private partnership which will see the boilers, radiators, etc
leased from commercial lessors.
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The Affordable Warmth Programme is based on a
pilot scheme in Leeds. This demonstrated the fuel savings from
the installation of modern energy efficient heating systems and
related insulation measures would allow the scheme to be extended
to low income homes on a commercial basis. But the Leeds pilot
also indicated that the programme would not be financially attractive
to landlords unless the leasing costs could be reduced. Capital
allowances provide a way of reducing these costs.
