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for certain sorts of capital expenditure on agricultural and industrial buildings but after that date they will be withdrawn.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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At Budget 2011 the Government announced its intention to abolish this relief from April 2013 subject to consultation.
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.
Subject to the conditions set out below you can claim for capital expenditure incurred on:
You can claim for the above if both of the following apply:
To qualify for the capital allowance:
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:
| 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 |
Examples of expenditure that you can claim for are:
You cannot claim for:
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 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.
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.
Capital expenditure on the renovation of business premises in 'disadvantaged areas' (designated 'Assisted Areas' in Northern Ireland) may qualify for the Business Premises Renovation Allowance (BPRA).
The BPRA scheme took effect from 11 April 2007 and applies for a period of five years up to 10 April 2012, to conversion, renovation or repairs to 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:
Find more information about BPRA and the conditions you must satisfy to claim the allowance
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 writing down allowances 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.
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.
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 either qualifies for writing down allowances at the rate for the main pool, currently 20 per cent or, if the fixtures are long-life assets, at the rate for the special rate pool, currently 10 per cent.
Qualifying fixtures can include:
Note that you can't claim capital allowances for expenditure on fixtures for use within a UK or overseas property used as a dwelling house that you rent out. However, items for use within common parts of a building may qualify.
Expenditure on integral features in buildings is treated differently. For more information 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
You can claim plant and machinery allowances for expenditure on certain, specified assets in a building that is in use for the purposes of your business. These are called integral features for capital allowances purposes. This expenditure qualifies for writing down allowances at the rate for the special rate pool, currently 10 per cent.
You can claim plant and machinery allowances for the following 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 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
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 writing down allowances at the rate for the special rate pool, currently 10 per cent.
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
Up to April 2011 you may be able to claim a 100 per cent allowance on expenditure on certain types of building in an enterprise zone if you are doing either of the following:
However, you cannot claim any allowance after the cut-off dates which are 1 April 2011 for Corporation Tax and 6 April 2011 for Income Tax.
Capital allowances for commercial buildings in enterprise zones
The industrial buildings allowance is gradually being phased out and will be completely withdrawn from April 2011.
Until April 2011, you can claim a writing down allowance in relation to the historic cost of certain industrial buildings and structures.
However, not all industrial buildings qualify, and the allowances are being phased out. You'll therefore need to read the detailed rules to find out whether and under what circumstances any particular type of building or use is eligible and how much you can claim.
More information on industrial buildings allowance
The agricultural building allowance is gradually being phased out and will be completely withdrawn from April 2011.
Until April 2011, you can claim for costs incurred in constructing agricultural buildings, and certain other works, used in the running of a farm.
However, not all agricultural buildings qualify, and the allowances are being phased out. You'll therefore need to read the detailed rules to find out whether and under what circumstances any particular type of building or use is eligible and how much you can claim.
Find out about what investment qualifies for capital allowances for agricultural buildings
If you need help in making your capital allowances claim you can contact the HMRC Self Assessment Helpline.
