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HMRC internal manual

Property Income Manual

Archived guidance: capital allowances: agricultural buildings allowance for lessors


There is full guidance about ABA in CA40000 onwards - refer to that if you require more detail. The Property Income Manual concentrates on the aspects of ABA that affect property income.

Who gets ABA?

ABA is available to a person having a freehold or leasehold interest in agricultural land who incurs qualifying expenditure. So for rental business purposes, the lessor of farm property may be entitled to ABA - it depends whether the lessor or the tenant incurred the expenditure.

The ‘relevant interest’ in a building is the freehold or leasehold interest in the agricultural land held by the person who constructed the building when he constructed it. If the ‘relevant interest’ is transferred from the person who incurred the expenditure to someone else then the new owner of that interest receives the ABA.

What matters is the purpose of the original expenditure - the building in question may be no longer used for agricultural purposes, but ABA is still due. On the other hand, no ABA is due in respect of a building where the first use was not agricultural, even if it is used for agricultural purposes later.

What expenditure qualifies?

The expenditure that qualifies for ABA is capital expenditure on the construction of:

  • farmhouses,

  • farm buildings,

  • cottages,

  • fences,

  • other works.

The expenditure has to be incurred ‘for the purposes of husbandry’. ABA is also available for horticulture and market gardening. In the case of farmhouses no more than one third of the expenditure can be taken into account for ABA.

Method of giving allowances

Allowances are deducted in computing the profit of the rental business, and balancing charges are added, as for plant and machinery capital allowances, see PIM3010 onwards.

Improvements to a property and ‘notional repairs’: ESC/B4: periods to April 2001

An alteration may not amount to a reconstruction of the whole property but the expenditure may still be capital expenditure because there is an improvement to the property.

For periods up to April 2001, ESC/B4 gave a measure of revenue relief where capital improvement expenditure saved the need for repairs expenditure. That is, either repairs to the old fittings were avoided or, but for the installation of improved fittings, expenditure on equivalent replacements would have been needed. ESC/B4 permits a deduction for the part of the capital expenditure that saves the estimated cost of the repair that would otherwise have been needed.

Another example is the cost of alterations made to reduce fire risks, perhaps to satisfy a local fire authority. Expenditure incurred on additional exits or fire escapes does not of itself qualify as a revenue deduction but the work may have obviated the need for some repairs. (Plant and machinery capital allowances may also be available for certified fire safety expenditure incurred on hotels and boarding houses.)

Where the alterations are so extensive as to amount to the reconstruction of the property, only the actual cost of repairs to any part of the old building incorporated in the new may be allowed. The cost of notional repairs (for example, decorations) on the new alterations isn’t deductible.

Notional repairs deduction: ESC/B4

The current property income rules, which apply from 6 April 1995 onwards, brought the IT computational rules for income from property more into line with the computational rules for calculating trading income. ESC/B4 ceased to have effect from April 2001, (see press release PR33/98).

The notional repairs concession only applied to the computation of rental business profits. It did not apply to the computation of trading profits.