I thought I’d share a generous tax break called the Flat Conversion Allowance or FCA.
Rather than invest in semi detached or terraced houses, why not think outside the box and look at disused flats above shops or commercial premises?
They will easily be cheaper, can be quickly renovated to add value and they come with a 100% tax break!
To qualify for this generous tax break there are certain key criteria:
- It must be built before 1980
- The ground floor must be used for a business
- The upper floor must have originally been intended as living accommodation
- Must have been vacant or used solely for storage for a minimum of a year before the conversion starts
- Any property can have no more than four storeys above the ground floor
The FCA relief allows the purchaser (you or your company) to claim a tax allowance for the cost of capital expenditure. Qualifying expenditure is capital expenditure incurred on, or in connection, with:
- the conversion of part of a qualifying building to a qualifying flat 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.
Examples of qualifying expenditure are the costs of dividing a single property to create a number of separate flats, and the costs of building dividing walls or installing a new kitchen or bathroom.
Capital repairs to the property incidental to the conversion or renovation may also qualify.
Expenditure incurred in connection with the conversion or renovation of a flat may include costs outside the direct boundary of the new or renovated flat such as the creation of stairwells within the building or provision of extension, solely to provide access to the new 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 does not 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.
Normally a deduction for this kind of capital expenditure would only be given when you sold the property as a deduction for capital gains tax. Here though, a 50% taxpayer would immediately recover half their renovation costs from HMRC.
It gets better! Should this claim create a loss, it can be used to offset against other income, say a salary, The loss does not have to be carried forward to offset against future profits.
So next time you are out looking for BTL property, keep your eye out for some commercial stuff
To Your Property Success!
Iain
