Factories (Leases) (Hansard, 14 February 1978)

§ Mr. Joel Barnett

Under present tax law an industrialist acquiring an interest in an industrial building is generally eligible for industrial buildings allowance in respect of his capital expenditure only if the construction costs of the factory were incurred by someone who previously held that same interest. The

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between movements in the figures as a per household, and a per capita, basis will reflect changes in both the composition of households and the relative size of the non-household (institutional) population.

interest in a factory which carries with it entitlement to industrial buildings allowances is known as "the relevant interest".

The public authorities which construct advance factories usually hold the freehold, or a very long lease, of the land on which they build, and it is therefore this interest which an industrialist must acquire to qualify for industrial buildings allowances. As part of the Government's policy to retain development land in public ownership, however, industrialists are not generally able to acquire a lease of more than 99 years on publicly-owned land; and consequently, under present tax law, they cannot qualify for industrial 161W buildings allowances in respect of any premium paid.

My right hon. Friend the Chancellor of the Exchequer proposes to include in the forthcoming Finance Bill a provision to remedy this anomaly. It will modify the industrial buildings allowance rules by enabling an industrialist who pays a capital sum for the grant of a lease of more than 50 years of an industrial building to elect jointly with the holder of the relevant interest in the industrial building for the new leasehold interest to be regarded as the relevant interest from the date on which it takes effect. Following such an election, the holder of the original relevant interest in the factory would be treated as though he had sold it for the capital sum paid on the granting of the new lease; and the industrialist holding the new lease would be entitled to industrial buildings allowances as though the capital sum he had paid had been for the acquisition of the original relevant interest in the factory. In this way, an industrialist paving a premium for a long lease for an advance factory will be enabled to claim industrial buildings allowance.

Subject to certain safegards against tax avoidance arrangements, my right hon. Friend will propose that the right to make such an election should apply not only to advance factories but whenever a lease of more than 50 years taking effect after today is granted out of the relevant interest in an industrial building.