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for certain sorts of capital expenditure on agricultural and industrial buildings but after that date they will be withdrawn.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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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.
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 (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.
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 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.
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 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.
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 qualifies for writing down allowances at the rate for the main pool, currently 20 per cent 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.
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 per cent.)
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. 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.
If you need help in making your capital allowances claim you can contact the HMRC Self Assessment Helpline.