In this section:

Capital allowances relating to buildings and renovation

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.

Until April 2011 there are capital allowances available for certain sorts of capital expenditure on agricultural and industrial buildings but after that date they will be withdrawn.

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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Flat conversions above commercial premises

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.

The flat conversion allowance is an allowance designed to encourage owners and occupiers to convert or renovate empty or underused space above shops and other commercial premises in order to provide flats for short term letting. This relief is sometimes referred to as 'Flats Over the Shop (FOTS)'.

You can only claim this particular allowance for expenditure that is not an allowable deduction for a UK property business.

Find out more about what deductions are allowable for a UK property business in the property income manual

What costs you can claim for

Subject to the conditions set out below you can claim for capital expenditure incurred on:

  • conversion costs
  • renovation costs
  • associated repair costs
  • the costs of providing access

You can claim for the above if both of the following apply:

  • you are converting a 'qualifying building' into one or more 'qualifying flats' - see the two definitions below
  • you have a 'relevant interest' in the property or the part of the property being converted - such as a freehold or leasehold interest

What is a qualifying building?

To qualify for the capital allowance:

  • all or most of the ground floor must be authorised for business use
  • the floors above the ground floor must have primarily been for residential use when the property was originally constructed
  • the floors above the ground floor must have been either unoccupied, or used only for storage, for at least one year before the conversion work starts
  • the property in which the flats are situated must have been built before 1980
  • the property must not have more than four storeys above the ground floor - an attic counts towards this total if it can be lived in

What are qualifying flats?

A flat is a dwelling that forms part of a building, is a separate set of premises and is divided horizontally from another part of a building. A flat can be on more than one floor.

A dwelling is a building or part of a building occupied or intended to be occupied as a separate dwelling.

To qualify for the capital allowance, the flats must:

  • be suitable for letting as a dwelling
  • be held for short-term letting
  • be accessible without using the business premises
  • have no more than four rooms ignoring kitchens and bathrooms and closets, cloakrooms and hallways that are not more than five square metres in area
  • not be high value flats - that is, the rental rates must not exceed those shown in the following table
  • not be created as part of a scheme involving the creation or renovation of one or more high value flats not be let to a person connected with the person who incurred the conversion or renovation expenditure

Maximum rental rates in order to qualify for the flat conversion allowance

No. of rooms in flat Flats in Greater London Flats elsewhere
1 or 2 rooms £350 per week £150 per week
3 rooms £425 per week £225 per week
4 rooms £480 per week £300 per week

Find out about conditions that must be satisfied for a conversion to qualify for the flat conversion allowance

What you can claim for

Examples of expenditure that you can claim for are:

  • the costs of dividing a single property to create a number of separate flats
  • the costs of building dividing walls or installing a new kitchen or bathroom
  • inserting or removing walls, windows, or doors
  • installing and upgrading plumbing, gas, electricity or central heating
  • re-roofing incidental to the conversion or renovation
  • providing access to the flat(s) separate from the commercial premises, including extensions to the building to contain this access
  • providing external fire escapes where regulations require

What you cannot claim for

You cannot claim for:

  • the acquisition of land or rights over land
  • the extension of the building unless it is to give access to the flat
  • the development of land adjoining the building
  • providing furnishings or chattels
  • expenditure that is an allowable deduction for a UK property business

How much you can claim

When it comes to claiming this allowance, you have two choices. Either you can claim a 100 per cent initial allowance, for example, your entire qualifying capital expenditure in the accounting period in which the expenditure was incurred. Or you can claim less than 100 per cent in that accounting period, and then claim allowances of 25 per cent of the qualifying expenditure in the following years. The Writing Down Allowance (WDA) cannot exceed the residue of qualifying expenditure (the amount of expenditure that has not yet been written off).

Example: You spend £100,000 on converting a qualifying flat and you choose to claim £20,000 allowance in the accounting period when the expenditure was incurred, leaving £80,000 unclaimed. You can then claim £25,000, that is, 25 per cent of the qualifying expenditure, in the next three years and the residue of £5,000 in the fourth year.

How to claim

In order to claim this allowance, you put the figure you are claiming in the relevant box on your Self Assessment 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 is lower than the usual threshold for needing to do so.

Renovating business premises

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. The scheme was originally due to end on 10 April 2012 but has been extended to 31 March/ 5 April 2017  It covers expenditure on the conversion or renovation of unused business premises that brings them back into business use.

What you can claim for

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:

  • be in an Assisted Area - an area which is considered to be disadvantaged and eligible for regional aid - the whole of Northern Ireland qualifies as an Assisted Area
  • not have been used for any trading or other business activity, or as offices, for at least one year before the works began
  • be available for business or commercial use after the works are complete - but not for farming, fisheries, aquaculture, the manufacture of substitute milk products or synthetic fibres, shipbuilding, steel or coal industries
  • from 11 April 2012 , where the business that has incurred the expenditure is in difficulty , or subject to an outstanding recovery order. From 11 April 2012 qualifying expenditure has been capped at €20 million per project. A project is generally a building

You cannot claim BPRA on:

  • the costs of acquiring the land
  • extending the business premises
  • developing land next to the business premises
  • conversion or renovation expenditure incurred on any residential property

Find out if an area in England, Wales or Scotland qualifies as an Assisted Area on the Department for Business, Innovation & Skills website (Opens new window)

Find more information about BPRA and the conditions you must satisfy to claim the allowance

How much you can claim

Either you can claim a 100 per cent initial allowance, that is, your entire qualifying capital expenditure. Or you can claim less than 100 per cent, and then claim WDA of 25 per cent 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 per cent of the qualifying expenditure, in each of the next three years and £5,000 in the fourth year.

How to claim

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.

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Fixtures in buildings

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 20 per cent or qualifying fixtures can include:

  • some kitchen equipment
  • bathroom suites, and some fittings

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.

Leased out dwelling property - restrictions

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.

Capital allowances on plant and machinery

Find the full list of fixtures you can claim allowances for

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Integral features of 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 per cent.)

The following are integral features:

  • electrical systems, including lighting systems
  • cold water systems
  • space or water heating systems, powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such systems
  • lifts, escalators, and moving walkways
  • external solar shading

You can claim plant and machinery allowances on expenditure on both of the following:

  • the initial expenditure on a new integral feature
  • any replacement expenditure incurred where either the whole, or more than 50 per cent, of an integral feature is replaced within any 12 month period

Leased out dwelling property - restrictions

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.

Capital allowances on plant and machinery

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Thermal insulation

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. Prior to 1 April 2008, for Corporation Tax, or 6 April 2008 for Income Tax, only industrial buildings qualified for the allowance. However, you can now claim for the cost of thermal insulation on all non-residential buildings that you occupy for the purposes of your business, such as offices and shops.

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.

Capital allowances on plant and Machinery

Plant and machinery allowances for thermal insulation

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More help

If you need help in making your capital allowances claim you can contact the HMRC Self Assessment Helpline.

Contact details for HMRC Self Assessment Helpline

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