Tax Relief Benefits for Underused Space

Are you considering buying a business property with unused space above and are unsure about what you should or do you already own commercial property with space above and are thinking about getting the best use out of the space?

You may be considering converting the underused space into flats for short term letting (FOTS) but what you may not realise is that you may be able to claim tax relief in the form of capital allowances for the work carried out; there are limitations which you would have to follow to be able to benefit from this tax relief but areas covered by capital allowances include conversion, renovation work together with providing separate access to the flats from your business premises.

Qualifying factors

  • the downstairs of the building must be utilized for business use i.e. a shop
  • the above floors (no higher than 4 floors) must have been originally built for residential use and not have been used as residential for 1 year+
  • built before 1980

If your building meets the above capital allowances could help the decision, capital allowances are a form of tax relief which you could benefit from when converting the area above your commercial property.  It does take slightly more consideration than just going straight ahead with the conversion but is worth the extra time and thought when you consider that you can claim back up to 8-10% of the purchase price, some points to consider before you start your renovation work:-

  • must be suitable and available for short term letting
  • have its own access
  • no bigger than 4 rooms (excludes kitchen/bathroom)
  • rental must be within the limits
  • not let to a relative

After considering whether your business property qualifies and taking into consideration the above points what areas should you bear in mind which you can claim tax relief for:-

  • divide the property up into the separate flats which include the constructions of the walls to separate individual rooms and flats
  • installing kitchen or bathroom
  • installation/removing windows or doors
  • installation/improvement of plumbing, gas, electricity or central heating
  • separate access and fire escapes as required by planning

As this is a fairly specialized area of tax it is worth talking through your plans with either your tax advisor or someone specialized in capital allowances this means you can address any possible issues and also understand from your likely costs and expenditure what you may be able to claim in tax relief.

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