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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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Assured Tenancy Allowances: Qualifying expenditure: basic rules

CAA01/S493 and CAA01/S501 - S503

Expenditure on which assured tenancy allowances are given is called qualifying expenditure.

The basic rule is that qualifying expenditure is capital expenditure incurred on constructing a building that is to be or includes a qualifying dwelling house CA85400 provided that the relevant interest has not been sold. It is also qualifying expenditure if the relevant interest is sold after first use of the building.

After expenditure has been incurred on constructing a building that is to be or includes a qualifying dwelling house the building may be sold before any of the dwelling houses in it have been used. In that case:

  • If the person who built the building is not a developer the qualifying expenditure is the lesser of the capital sum paid for the relevant interest and the construction cost.
  • If the person who built the building is a developer the qualifying expenditure is the capital sum paid for the relevant interest. If there was more than one sale the qualifying expenditure is the lesser of the capital sum paid by the last purchaser and the price paid to the developer.

 

Example

Keith Plc is a property developer. It builds a block of flats for letting under the assured tenancy scheme on land that it owns for £2 million. Before any of the flats have been used it sells the block to Sam Ltd for £2.5 million excluding the cost of the land. Sam Ltd sells the block to Tony Plc for £2.7 million excluding the cost of the land. Tony Plc decides that it does not want to be a landlord and sells the block to Paul Ltd for £2.6 million excluding the cost of the land. The qualifying expenditure of Paul Ltd is £2.5 million because that is the lower of the price paid to Keith Plc (£2.5 million) and the price Paul Ltd paid (£2.6 million).

A developer is a person whose trade consists of or includes the construction of buildings for sale.

Expenditure on the acquisition of land or of rights in or over land is not construction expenditure and therefore does not qualify for assured tenancy allowance.

Treat capital expenditure on repairs to part of a building as capital expenditure on constructing that part of the building. This means that it can qualify for assured tenancy allowance.