You can, in certain circumstances, claim capital allowances for capital expenditure on specific types of building improvement and renovation. As with all capital allowances, there are conditions that have to be met before you can claim them.
This guide tells you what capital allowances are available for certain expenditure on certain buildings, how to find out more about them, and how to claim them on your Company Tax Return or Income Tax Return.
Apart from the allowances described in this guide, capital allowances are generally not available for expenditure on land or buildings.
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Capital expenditure on the renovation of business premises in certain 'disadvantaged areas' may qualify for the Business Premises Renovation Allowance (BPRA).
The BPRA scheme took effect from 11 April 2007 and is due to end on 31 March (Income tax) / 5 April 2017 (corporation tax). It covers expenditure on the conversion or renovation of unused business premises that brings them back into business use.
To claim for qualifying capital expenditure incurred on conversion, renovation or repairs of or to a commercial building or structure, or part of one, it must:
You cannot claim BPRA on:
Either you can claim a 100% initial allowance, that is, your entire qualifying capital expenditure. Or you can claim less than 100%, and then claim WDA of 25% of the qualifying expenditure, but the limited to the residue of the qualifying expenditure (the amount of expenditure that has not been written off).
Example: you spend £100,000 on converting a disused warehouse in Northern Ireland into offices and choose to claim £20,000 allowance in the accounting period when the expenditure was incurred offices are first available for letting, leaving £80,000 unclaimed. You can then claim £25,000, that is, 25% of the qualifying expenditure, in each of the next three years and £5,000 in the fourth year.
In order to claim this allowance, you put the figure you are claiming in the relevant box on your tax return as indicated in the notes to the return. If you are self-employed and want to claim this allowance, you will need to complete the full self-employment form even if your turnover was less than the usual threshold for needing to do so.
This relief was abolished from 1 April 2013 for businesses subject to Corporation Tax and from 6 April 2013 for businesses subject to Income tax.
Find out more about what deductions are allowable for a UK property business in the property income manual.
You may be able to claim plant and machinery allowances for expenditure on certain fixtures in a building that is in use for the purposes of your business. This expenditure qualifies for writing down allowances at the rate for the main pool, currently 18% or qualifying fixtures can include:
From April 2012 if you purchase or sell a property which contains fixtures (such as kitchen fittings, electrical or heating systems) you must agree the part of the purchase price to be attributed to those fixtures with the other party to the sale. Normally, you should fix your mutual agreement by means of a joint election (called a 'section 198' or 'section 199' election) which you must notify to HMRC within 2 years of the date of transfer. This written election sets out the agreed value of the fixtures and gives enough information to identify buyer and seller, the fixtures and the property transferred. As a seller, the amount you can bring in to any pool as your disposal value will be the same amount as the amount the buyer can bring in as his acquisition value for capital allowances purpose. It is likely to be very much easier to agree the part of the purchase price to be attributed to the fixtures as part of the actual sale agreement, when both sides have maximum negotiating power. If, exceptionally, the parties are unable to reach an agreement, then either party can refer the matter to a First Tier Tribunal within two years for an independent determination.
If one of the specified ways of determining the value of the fixtures in business property has not been used, than the purchaser will be unable to claim allowances on this expenditure.
If you are thinking of buying or selling or leasing a business property for which capital allowances may be available, you should contact your tax adviser. From April 2014 if you buy or sell a property the new owner will only be able to claim allowances in respect of a fixture if the past owner has allocated their qualifying expenditure relating to the fixture to a pool. Pooling includes making a claim for FYA or Annual Investment Allowance in respect of this expenditure. It is not necessary for the last owner to claim writing down allowances. (As a general rule, the past owner is the last person who was entitled to claim capital allowances by virtue of incurring qualifying expenditure on the provision of the fixture. A past owner does not include a person who ceased to be treated as owning the plant or machinery before 6 April 2012.)
Note that if your business is an ordinary UK property business or an overseas property business you can't claim capital allowances for expenditure on plant or machinery (including those that are fixtures or integral features), for use within a dwelling house that you rent out. However, expenditure on plant or machinery for use within common parts of a building that contains more than one dwelling may qualify.
See the section below on features integral to buildings.
You can claim plant and machinery allowances for expenditure on certain, specified assets called integral features of a building or structure that is in use for the purposes of your business. But not if they are in a dwelling house that is let out as part of your business as an ordinary UK property business or an overseas property business. Expenditure on integral features qualifies for WDA at the rate for the special rate pool (currently 8%.)
The following are integral features:
You can claim plant and machinery allowances on expenditure on both of the following:
Note that you can't claim capital allowances for expenditure on plant or machinery including integral features to be installed within a UK or overseas property used as a dwelling house that you rent out. However, expenditure on integral features within common parts of a building may qualify.
You can claim plant and machinery allowances on expenditure you incur on the thermal insulation added to a non-residential building that is in use for the purposes of your business. This expenditure qualifies for WDA at the rate for the special rate pool.
This allowance is only available for expenditure on thermal insulation added to an existing building and not on expenditure on thermal insulation incurred as part of the original construction cost.
This allowance is not available for residential buildings, but if you are a landlord and make energy saving improvements to your property, you might be able to reduce the tax you pay by claiming the Landlord's Energy Savings Allowance - which is not a capital allowance.
If you need help in making your capital allowances claim you can contact the HMRC Self Assessment Helpline.