CA43250 - FCA: Qualifying flat

CAA01/S393D - S393E

A qualifying flat is a flat CA43100 that:

• is in a qualifying building CA43200;
• is suitable for letting as a dwelling;
• is held for short-term letting;
• is accessible without using the business premises;
• has no more than 4 rooms ignoring kitchens and bathrooms and closets, cloakrooms and hallways that are not more than 5 square metres in area;
• is not a high value flat;
• was not created as part of a scheme involving the creation or renovation of one or more high value flats; and
• is not let to a person connected with the person who incurred the conversion or renovation expenditure.

Short-term letting of a flat is letting the flat as a dwelling for a term or period of not more than 5 years. A letting under an assured shorthold tenancy will be short-term letting provided that any initial fixed-term lease does not exceed 5 years. The potential for a period of statutory periodic tenancy after the expiry of the fixed term does not alter this.

Look at the end-use of the flat when you decide whether it is used for short-term letting. The length of a lease to an intermediate lessor does not matter. What matters is that the letting to the occupying tenant is short-term.

Example As in the example at CA43100 Rick runs a café-bar. It is in the ground floor of a 3- storey building. Rick converts the top to floors to qualifying flats and lets them to Sam on a 20- year lease on the understanding that Sam will use them for short-term letting. Sam lets the top flat to Louis on a 5-year lease and the first floor flat to Lisa on a 4-year lease. Rick can claim flat conversion allowance (FCA).

A qualifying flat does not need to occupy only a single floor within the building.

A flat must remain a qualifying flat for a period of 7 years from the time it is first suitable for letting if the person holding the relevant interest wants to avoid a balancing adjustment.

A flat is suitable for letting from the time it, and any other necessary conversion or renovation work, has been completed, so that it would be reasonable to regard the flat as available for short- term letting. There is no requirement that the flat is actually let. A flat could be held for letting if it is being actively marketed and a tenant is being sought.

A flat will not cease to be a qualifying flat during a period while it is temporarily unsuitable for letting, provided it was a qualifying flat immediately before that period. This means, for example, that a flat would not cease to be a qualifying flat because it is being redecorated between tenancies.

A flat is not a qualifying flat if it is a high-value flat, or is part of a scheme that contains a high- value flat.

You should apply the test whether a flat is a high-value flat when the conversion or renovation expenditure is first incurred. A flat is a high value flat if its "notional rent" exceeds specific limits. The notional rent is the rent for which the flat could be reasonably let at the date the expenditure is first incurred on its conversion or renovation. In arriving at the notional rent you should make the following assumptions. They are that, at the time the expenditure is first incurred:

• the conversion or renovation had been completed,
• the flat is let furnished,
• the lease does not require a premium or other payment to be made to the landlord,
• the tenant is not connected with the person who incurred the expenditure on the conversion or renovation, and
• in England or Wales the flat is let on an assured short hold tenancy or in Scotland it is let on a short assured tenancy.

The notional rent limits are as follows:

Ignore kitchens and bathrooms, and closets, cloakrooms and hallways not exceeding 5 square metres when determining the number of rooms in a flat.

A flat does not become a high-value flat if, at some time after the conversion or renovation expenditure is first incurred, the rent it could achieve exceeds these limits. The test operates independently of any future movements in the property letting market.