Flat conversion allowance (FCA) was introduced by FA2001. It is
intended to encourage the conversion of empty or underused space
above shops and other commercial premises to residential use. The
scheme is sometimes referred to as flats over the shop (FOTS). The
flats must be available for short-term letting in order to qualify
for FCA. Allowances are not available if the flats that are created
are high value
CA43250. The property in which the flats
are situated must have been built before 1980. Conversion or
renovation works in an extension to a property built before 1980
that are completed by 31 December 2000 can also qualify for FCA.
The property must not have more than 4 storeys above the
ground floor. An attic counts towards this total if it can be lived
in.
It must appear that, when the property was constructed, the
floors above the ground floor were primarily for residential use.
These upper floors must have been either unoccupied, or used only
for storage, for at least one year before the conversion work
starts. If part of the upper floors satisfies this test, and part
does not the conversion expenditure is apportioned. For example, a
shop may have three floors above the ground floor that were
primarily for residential use when the property was constructed. If
two of those floors had been unoccupied for 2 years before
conversion work began and one had been used as an office, you
should apportion any conversion expenditure that relates to all
three floors.
A person who incurs qualifying expenditure in respect of a
qualifying flat and who has the relevant interest in the flat can
claim FCA.
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.
In the FCA legislation,
lease includes an agreement for a lease, but only
where the term to be covered by the lease has begun, and any
tenancy. It does not include a mortgage.
In Scotland leasehold interest means the interest of a tenant
in property subject to a lease.
The scheme is very generous in that the allowance is 100% of
the qualifying expenditure. Qualifying expenditure
CA43150 is capital expenditure incurred
in connection with the conversion of a qualifying building
CA43200.
The scheme is very like the IBA scheme in that:
But there are differences:
Example Rick runs a café-bar. It is in the ground floor of a 3-storey building that was built 100 years ago. When the building was constructed, the first and second floors were for the proprietor's accommodation. Rick has a 75-year lease of the building. He uses the first floor for storage. He does not use the second floor. In the tax year 2004/05 he converts the second floor into a flat for letting. Rick can claim an allowance equal to the whole of the conversion costs in 2004/05. If he transfers the lease of the building to Sam he can avoid a clawback of the FCA claimed in 2004/05 by not doing the transfer until after 5 April 2012.
