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HMRC internal manual

Capital Allowances Manual

FCA: Relevant interest

CAA01/S393F - S393G

A person must have a relevant interest in the flat at the time they incur theconversion or renovation expenditure to be entitled to flat conversion allowance (FCA).This will normally be a freehold or leasehold interest in the property, or the part of theproperty that is being converted or renovated. A person who does not have the relevantinterest at the time they incur the conversion or renovation expenditure may claim FCAprovided they are entitled to an interest in the flat as a result of the conversion.

The rules for determining the relevant interest are similar to those for industrialbuildings allowances.

The relevant interest in a flat in relation to any qualifying expenditureis the interest in the flat to which the person who has incurred the expenditure isentitled when the expenditure is incurred. Thus, if the person who incurs the expenditureowns the freehold in the building when the expenditure is incurred, the freehold is therelevant interest. Similarly, if he or she holds a long lease, that lease is the relevantinterest.

Example As in the example at CA43100 Rick runsa café-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.Victor holds the freehold. If Rick converts the second and third floors to qualifyingflats the relevant interest in the flats is Rick’s leasehold interest. If Victor does theconversion the relevant interest in the flats is his freehold interest.

If that person has more than one qualifying interest and one of these is reversionary onall the others, the reversionary interest is the relevant interest. Similarly, thecreation of a lease or other interest does not lead to the original interest ceasing to bethe relevant interest.

Where the relevant interest is leasehold and it is extinguished by the person acquiringanother interest, which is reversionary on it, the interest into which the leaseholdmerges becomes the relevant interest.

A person who incurs expenditure on converting part of a building into a flat and isentitled to an interest in the flat on or as a result of the completion of the conversionis treated as having had that interest at the time the expenditure was incurred.