A flat conversion allowance is available to convert or renovate empty or underused space above shops and other commercial premises for the purpose of short-term letting.
This allowance can only be claimed if it is not an allowable business deduction. Subject to conditions below, a claim can be made for the following capital expenditure:
(a) conversion costs;
(b) renovation costs;
(c) associated repair costs; and
(d) the costs of providing access.
The above costs can be claimed if one or more qualifying flats will result from the conversion of a qualifying building and the flat is in a qualifying building.
Also, the claimant must have a relevant interest (freehold or leasehold) in the property or the part that is being converted.
To qualify for the capital allowance the ground floor of the building must be authorised for business, the floors above must have been primarily residential, the upper floors must have been unoccupied or used only for storage, the building must have been built before 1980 and the property must not have more than four storeys above the ground floor.
A qualified flat is a dwelling that forms part of a building, is a separate set of premises and is divided horizontally from another part of a building. A flat can be on more than one floor.
A dwelling is a building or part of a building occupied or intended to be occupied as a separate dwelling. To qualify for the capital allowance, the flat must:
(a) be suitable for letting as a dwelling;
(b) be held for short-term letting;
(c) be accessible without using the business premises;
(d) have no more than four rooms ignoring kitchens and bathrooms, closets, cloakrooms and hallways that are not more than five square metres in area;
(e) not be a high value flats (that is, the rental rates must not exceed those prescribed for Greater London and elsewhere;
(f) not be created as part of a scheme involving the creation or renovation of one or more high value flats; and
(g) not be let to a person connected with the person who incurred the conversion or renovation expenditure.
There are conditions as to the maximum rental rates in Greater London and elsewhere which must be
satisfied ranging from as much as £480 per week in Greater London to as low as £150 per week elsewhere.
A claim can be made for either 100% initial allowance, i.e., the entire qualifying capital expenditure in the accounting period in which the expenditure was incurred or a claim less than 100 per cent in that accounting period, and then claim allowances of 25 per cent of the qualifying expenditure in the following years.
The WDA cannot exceed the residue of the qualifying amount.
If all of this seems too complex then contact the best CA advisors the UK has to offer.