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HMRC internal manual

Capital Allowances Manual

FCA: Qualifying expenditure

CAA01/S393B

Qualifying expenditure is capital expenditure incurred on, or in connection,with:

  • the conversion of part of a qualifying building CA43200 into a qualifying flat CA43250, or
  • the renovation of a flat in a qualifying building to create a qualifying flat, or
  • repairs incidental to the conversion or renovation of a qualifying flat, or
  • the provision of access to a qualifying flat.

The part of the building on which the expenditure was incurred must have been unused orused only for storage for the year before the work begins.

Examples of qualifying expenditure are the costs of dividing a single property to create anumber of separate flats, and the costs of building dividing walls or installing a newkitchen or bathroom. Capital repairs to the property incidential to the conversion orrenovation may also qualify.

Treat expenditure on repairs as qualifying expenditure if it cannot be deducted incalculating business profits.

Expenditure incurred in connection with the conversion or renovation of a flat may includecosts outside the direct boundary of the new or renovated flat such as the creation ofstairwells within the building or provision of extension, solely to provide access to thenew flats. It may also include architect’s and surveyor’s fees.

Examples of associated costs that may qualify are:

  • inserting or removing walls, windows, or doors,
  • installing and upgrading plumbing, gas, electricity or central heating,
  • re-roofing incidental to the conversion/renovation,
  • providing access to the flat(s) separate from the commercial premises, including extensions to the building to contain this access, if required,
  • providing external fire escapes where regulations require.

Some expenditure does not qualify for flat conversion allowance (FCA). Expenditure doesnot qualify if it is incurred on or in connection with:

  • the acquisition of land or rights in or over land,
  • an extension to the building (unless it is required to give access to a qualifying flat),
  • the development of land adjoining or adjacent to the building. This includes conversions forming part of a larger scheme of development, and
  • the provision of furnishings or other chattels.

Example As in the example at

CA43100 Rick runs acafé-bar. It is in the ground floor of a 3- storey building. Rick has a 75-year lease ofthe building. He uses the first floor for storage. He does not use the second floor. Heconverts the two upper floors into flats for letting. He incurs expenditure on installingbathrooms and central heating and on furniture for the flats. The cost of the bathroomsand the central heating qualifies for FCA. The cost of the furniture does not. The onlyaccess to the upper floors is a staircase from the café. Rick builds an outside staircaseto provide separate entrances for the flats. The cost of constructing the staircase alsoqualifies for FCA.