The First-tier Tribunal decision in Perenco UK Limited v HMRC [2026] UKFTT 1096 (TC) provides useful guidance beyond the oil and gas sector. It confirms that the capital allowances ownership test and qualifying purpose must be applied to the statutory facts, not broad ideas of economic substance. It also shows why transaction documents and a section 198 fixtures election need careful, contemporaneous support.
Why Perenco matters beyond oil and gas
Perenco acquired interests in oilfields and associated facilities. A pre-emption arrangement meant Perenco transferred part of those assets to another party six days after completion.
HMRC challenged more than £65 million of plant and machinery expenditure. The resulting corporation tax dispute exceeded £39 million. The Tribunal allowed Perenco’s appeal on the substantive issues.
The decision is fact-specific and, as a First-tier Tribunal judgment, does not bind other courts. However, its reasoning is relevant to property acquisitions, infrastructure deals, reorganisations and other transactions involving plant and machinery.
Qualifying purpose is tested with ownership
Under section 11 of the Capital Allowances Act 2001, qualifying expenditure must be capital expenditure on providing plant or machinery for a qualifying activity. The claimant must also own the asset as a result of that expenditure.
Perenco made payments before legal completion. The Tribunal read the statutory conditions together. Expenditure could not become qualifying expenditure until it resulted in ownership. The relevant purpose was therefore assessed when Perenco acquired the assets, rather than when funds were first paid. This distinction can affect the chargeable period in which a capital allowances claim is made. It may also change which commercial intentions are relevant to the purpose test. Transaction teams should therefore map payment, contractual completion, beneficial ownership and legal title separately, as accounting recognition does not determine the capital allowances treatment.
A genuine mixed purpose may still qualify
By completion, Perenco had conditionally committed to the onward sale. HMRC argued that the disputed expenditure was not wholly for Perenco’s ring-fenced trade.
The Tribunal nevertheless found that the facilities were held at least partly for that qualifying activity during Perenco’s ownership. That was sufficient for the general purpose condition in section 11(4). Separate rules governing the enhanced ring fence relief also required closer consideration.
The wider point is measured. An onward sale or restructuring does not automatically prevent allowances. The taxpayer must still show a real qualifying purpose, supported by the agreements, decision-making record and actual use.
Ownership is a legal question, not a holding-period test
Perenco became the legal and equitable owner on completion. The Tribunal rejected HMRC’s argument that the short holding period prevented ownership in a “real and practical sense”.
Section 11 does not prescribe a minimum ownership period. Nor does it require the claimant to retain every economic benefit and risk for a specified time. The transaction under which expenditure is incurred remains central.
That does not make temporary ownership arrangements risk-free. HMRC may scrutinise whether title genuinely passed, whether obligations were substantive and whether the wider arrangements support the stated purpose.
For example, a trading company may acquire a property containing embedded plant and transfer one floor to a group company shortly afterwards. The initial company may still have qualifying expenditure if it genuinely owned the fixtures and acquired them partly for its qualifying activity. The later transfer must then be addressed under the relevant disposal and fixtures rules. A short period of ownership is not automatically fatal, but evidence of title, purpose and transaction sequencing remains essential.
Section 198 elections remain effective, subject to purpose
The onward sale included a joint election under section 198 CAA 2001. It fixed the disposal value attributed to the relevant fixtures at a low amount, leaving substantial allowances with Perenco.
HMRC relied on section 197, which can disapply an election where statutory anti-avoidance conditions are met. The Tribunal found an arrangement and a potential tax advantage. However, obtaining that advantage was not a main purpose. The commercial acquisition and resolution of pre-emption rights drove the structure.
The result does not endorse nominal elections in every transaction. A section 198 fixtures election must reflect an agreed allocation within the statutory limits. Pooling and fixed-value requirements must also be satisfied where applicable. A similar issue can arise when a buyer acquires a hotel containing heating, ventilation, lifts and sanitary systems embedded in the building. The buyer should establish the seller’s pooling history and agree a valid section 198 election where required. The election allocates the fixtures disposal value; it does not itself create qualifying expenditure. Leaving these matters until after completion can reduce or permanently prevent future claims, so capital allowances due diligence should begin before heads of terms are finalised.
Practical implications for businesses
Perenco highlights several actions for buyers, sellers and advisers:
- identify when expenditure is incurred for tax purposes and when ownership passes
- separate capital expenditure from deductible repairs and other revenue expenditure
- review whether each asset is plant, machinery, a fixture or part of the structure
- document qualifying use and any wider commercial purposes at the relevant time
- confirm pooling history, prior Capital Allowances claims and tax written down value (TWDV)
- agree elections and contractual protections before statutory deadlines expire.
Businesses should also test interactions with other reliefs. For example, expenditure cannot simply be treated as both plant and machinery qualifying expenditure and expenditure qualifying for Land Remediation Relief. The statutory conditions and any exclusions must be considered separately.
Managing HMRC risk
A defensible claim requires more than an asset schedule. HMRC may examine sale agreements, board papers, completion mechanics, valuations and the commercial rationale for connected steps.
Claims should reconcile to the accounts without assuming that accounting treatment controls tax treatment. They should also explain movements between chargeable periods, additions, disposals and the resulting TWDV.
Where the facts permit more than one interpretation, businesses should record the judgement applied. Appropriate disclosure and specialist review may reduce uncertainty, but neither replaces the need to satisfy the legislation.
Conclusion
Perenco supports a statutory, evidence-led approach to capital allowances. Legal and equitable ownership, qualifying purpose and the transaction sequence can matter more than the length of ownership alone.
For future acquisitions and reorganisations, early review creates the best opportunity to protect allowances and manage HMRC risk. Businesses considering a section 198 fixtures election or a complex capital allowances claim should seek advice from a specialist before commercial terms are fixed.
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