CA93200 - Structures and buildings allowance (SBA): qualifying expenditure: expenditure on construction or acquisition: renovation, conversion or repair

CAA01/S270BJ

It may be necessary to carry out further work to a building for use in a qualifying activity.

Expenditure on renovation or conversion, or on repairs that are incidental to a renovation or conversion, is treated as if it were expenditure on the construction of a building for the first time. This treatment is necessary because the building that the works are being carried out on may have been constructed before 29 October 2018 CA90200 or, if constructed on or after that date, may have first been brought into residential use, and so may not itself have qualified for SBA CA92400.

The renovation, conversion or repair expenditure is considered separately to see if it is qualifying expenditure CA93010 (determining the amount of qualifying capital expenditure by reference to CAA01/S270BB CA93450).

The renovation, conversion or repair expenditure may be incurred on only part of a building.

Only the costs incurred to renovate or convert the building will qualify, not the original construction expenditure, unless those costs separately qualified for SBA.

As with the original construction of a building, to be entitled to SBA on the renovation, conversion or repair expenditure the first use of the converted, renovated or repaired part of the building must be both:

• non-residential use, which starts the 33 1/3 year period CA92400
• qualifying use for the first time after the works have been carried out CA92100.

The renovation and conversion expenditure that is qualifying expenditure for SBA must be recorded separately for the purposes of calculating the SBA. This is because the renovation and conversion costs will be a separate block of construction expenditure CA93450 and qualify for SBA at 3% over a new period of 33 1/3 years, starting on a different date to any other 33 1/3 year claim period relating to the building CA90100.

Repairs incidental to renovation or conversion

Repairs allowable for the SBA are only those that are incidental to the capital costs of renovation and conversion of a building and that are not allowable as a deduction in calculating the profits of the qualifying activity for tax purposes. Whether or not a deduction is available against profits depends on whether the expense is a capital or revenue expense as a matter of tax law.

Regardless of the depreciation policy, provided that the expenditure incurred on repairs, renovation or conversion is capital it may qualify for the SBA. See BIM42215 for further guidance about the tax treatment of costs taken to the balance sheet and charged to the profit and loss account as depreciation.