Capital Allowances on Buildings

by admin on January 25, 2013

Capital allowances are designed to allow for the depreciation of capital. Generally allowances may be claimed on the assets of a commercial property with which rather than in which business is conducted. Therefore the structural elements of buildings are usually ineligible for capital allowances while the fittings and systems (plant and machinery) generally are. There are however some exceptions and other things to consider.

A very specific type of flat conversion also qualifies; essentially it must be in existing property built before 1980 that was originally residential and located above some sort of retail operation. It must also be affordable. This is known as the Flat Conversion Allowance.

There is also relief for renovation of premises in ‘assisted areas’ so long as they have been out of use for more than a year and that the new business does not make steel, coal, synthetic fibres or certain agricultural/fisheries products. This is called the Business Premises Renovation Allowance.

Other than in these circumstances the normal rules apply – only plant and machinery in the building will qualify for relief; the rest of the structure (i.e. the premises) will not. However, there is still a narrow line between what is and is not plant and machinery, the nature of some assets is ambiguous. For instance in Hunt (Inspector of Taxes) v Henry Quick Ltd (1992) a storage platform was held to be plant because even though it appeared to be a structure and was fixed to the premises, it was directly involved in the carrying out of trade and could be removed from the premises if necessary.

Nevertheless, there are still plenty of assets that count as plant and machinery even though it might be thought that they are part of the structure; these include

•    Heating and air conditioning
•    Hot and cold water systems
•    Gas systems
•    Power systems
•    Lifts and escalators
•    Swimming pools
•    Suspended ceilings or raised floors acting as an air plenum
•    Storage mezzanines (as above)
•    Strong rooms
•    Special flooring material (such as ballroom floors)
•    Insulation materials

To sum up, other than the two examples provided, the plant and machinery vs. premises test is what should determine which parts of building are eligible for capital allowances.

Read the HMRC guidelines Here



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