Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Capital Allowances Manual

IBA: Qualifying expenditure: Building bought unused

The buyer may pay a deposit and then the balance of the purchase price on completion. If this happens you should treat the buyer as incurring all of the qualifying expenditure on the completion date.

Example David incurs capital expenditure on constructing a building. He does not bring it into use and sells it to Stephen. Stephen decides that it is not suitable for his business and sells it, still unused, to Graham who pays a capital sum to Stephen. The qualifying expenditure is the lower of David’s construction expenditure and the price Graham pays Stephen. The price Stephen paid to David is ignored.

Do not treat a building as unused if it has been used for any purpose. However, you should not treat occupation by a tenant for fitting out by that tenant prior to the commencement of actual production or other use as use. The fitting out process is merely the completion of construction.

Example David builds a factory and leases it to Stephen. If David lets Stephen occupy the factory to fit it out and then sells the factory to Graham before Stephen has started to use the factory for actual production the factory is unused at the time of sale. Graham is treated as if he had bought an unused building.

If, however, David first gives a short lease to Neil to use the factory building on a temporary basis for storage before David leases it to Stephen who fits it out and sells it to Graham. The factory is a used building when Graham buys it.

The expenditure on constructing a building may have been incurred by a developer. A developer is a person who carries on a trade that consists, in whole or in part, of the construction of buildings with a view to their sale. If you have to decide if a company is a developer the fact that it subcontracts the actual construction work does not stop it being one. A trading company will sub- contract work if it is economically sensible to do so. The qualifying expenditure of a person who incurs capital expenditure on acquiring the relevant interest in an unused building from a developer is the price paid for the relevant interest.

A building constructed by a property developer may change hands several times before it is brought into use. If so the qualifying expenditure is the lower of the price paid by the first purchaser and the price paid by the final purchaser. Anything in between is ignored.

Example Dave is a developer. He constructs a building at a cost of £750,000 that he sells to Robin for £1 million. Robin does not bring it into use but sells it to George for £1,100,000. George finds that the building does not have the planning permission needed for his intended use and so he sells it unused to Tony for a capital sum of £950,000. Tony’s qualifying expenditure is £950,000, the lower of the price he paid to George, £950,000, and £1 million, the price paid by Robin to Dave. The price George paid to Robin is ignored and so is Dave’s construction cost.