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Session 2004 - 05
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Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
216

Schedule 12
Section 131

Capital allowances: renovation of business premises in disadvantaged areas
Part 1
New Part 3A of the Capital Allowances Act 2001
1
After Part 3 of CAA 2001 insert—
5
“PART 3A
BUSINESS PREMISES RENOVATION ALLOWANCES
CHAPTER 1
INTRODUCTION
360A
Business premises renovation allowances
10
(1)
Allowances are available under this Part if a person incurs qualifying
expenditure in respect of a qualifying building.
(2)
Allowances under this Part are made to the person who—
(a)
incurred the expenditure, and
(b)
has the relevant interest in the qualifying building.
15
CHAPTER 2
QUALIFYING EXPENDITURE
360B
Meaning of “qualifying expenditure”
(1)
In this Part “qualifying expenditure” means capital expenditure
incurred before the expiry date on, or in connection with—
20
(a)
the conversion of a qualifying building into qualifying
business premises,
(b)
the renovation of a qualifying building if it is or will be
qualifying business premises, or
(c)
repairs to a qualifying building or, where the qualifying
25
building is part of a building, to the building of which the
qualifying building forms part, to the extent that the repairs
are incidental to expenditure within paragraph (a) or (b).
(2)
In subsection (1) “the expiry date” means—
(a)
the fifth anniversary of the day appointed under section 131
30
of the Finance Act 2005, or
(b)
such later date as the Treasury may prescribe by regulations.
(3)
Expenditure is not qualifying expenditure if it is incurred on or in
connection with—
(a)
the acquisition of land or rights in or over land,
35
(b)
the extension of a qualifying building (except to the extent
required for the purpose of providing a means of getting to
or from qualifying business premises),

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
217

(c)
the development of land adjoining or adjacent to a qualifying
building, or
(d)
the provision of plant and machinery, other than plant or
machinery which is or becomes a fixture as defined by section
173(1).
5
(4)
For the purposes of this section, expenditure incurred on repairs to a
building is to be treated as capital expenditure if it is not expenditure
that would be allowed to be deducted in calculating the profits of a
property business, or of a trade, profession or vocation, for tax
purposes.
10
(5)
The Treasury may by regulations make further provision as to
expenditure which is, or is not, qualifying expenditure.
CHAPTER 3
QUALIFYING BUILDINGS AND QUALIFYING BUSINESS PREMISES
360C
Meaning of “qualifying building”
15
(1)
In this Part “qualifying building”, in relation to any conversion or
renovation work, means any building or structure, or part of a
building or structure, which—
(a)
is situated in an area which, on the date on which the
conversion or renovation work began, was a disadvantaged
20
area,
(b)
was unused throughout the period of one year ending
immediately before that date,
(c)
on that date, had last been used—
(i)
for the purposes of a trade, profession or vocation, or
25
(ii)
as an office or offices (whether or not for the purposes
of a trade, profession or vocation),
(d)
on that date, had not last been used as, or as part of, a
dwelling, and
(e)
in the case of part of a building or structure, on that date had
30
not last been occupied and used in common with any other
part of the building or structure other than a part—
(i)
as respects which the condition in paragraph (b) is
met, or
(ii)
which had last been used as a dwelling.
35
(2)
In this section “disadvantaged area” means—
(a)
an area designated as a disadvantaged area for the purposes
of this section by regulations made by the Treasury, or
(b)
if no regulations are made under paragraph (a), an area for
the time being designated as a disadvantaged area for the
40
purposes of Schedule 6 to the Finance Act 2003 (stamp duty
land tax: disadvantaged areas relief).
(3)
Regulations under subsection (2)(a) may—
(a)
designate specified areas as disadvantaged areas, or
(b)
provide for areas of a description specified in the regulations
45
to be designated as disadvantaged areas.

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
218

(4)
If regulations under subsection (2)(a) so provide, the designation of
an area as a disadvantaged area shall have effect for such period as
may be specified in or determined in accordance with the
regulations.
(5)
Regulations under subsection (2)(a) may—
5
(a)
make different provision for different cases, and
(b)
contain such incidental, supplementary, consequential or
transitional provision as appears to the Treasury to be
necessary or expedient.
(6)
Where a building or structure (or part of a building or structure)
10
which would otherwise be a qualifying building is on the date
mentioned in subsection (1)(a) situated partly in a disadvantaged
area and partly outside it, only so much of the expenditure incurred
in accordance with section 360B as, on a just and reasonable
apportionment, is attributable to the part of the building or structure
15
located in the disadvantaged area is to be treated as qualifying
expenditure.
(7)
The Treasury may by regulations make further provision as to the
circumstances in which a building or structure or part of a building
or structure is, or is not, a qualifying building.
20
360D
Meaning of “qualifying business premises”
(1)
In this Part “qualifying business premises” means any premises in
respect of which the following requirements are met—
(a)
the premises must be a qualifying building,
(b)
the premises must be used, or available and suitable for
25
letting for use,—
(i)
for the purposes of a trade, profession or vocation, or
(ii)
as an office or offices (whether or not for the purposes
of a trade, profession or vocation),
(c)
the premises must not be used, or available for use as, or as
30
part of, a dwelling.
(2)
In this section “premises” means any building or structure or part of
a building or structure.
(3)
For the purposes of this Part, if premises are qualifying business
premises immediately before a period when they are temporarily
35
unsuitable for use for the purposes mentioned in subsection (1)(b),
they are to be treated as being qualifying business premises during
that period.
(4)
The Treasury may by regulations make further provision as to the
circumstances in which premises are, or are not, qualifying business
40
premises.

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
219

CHAPTER 4
THE RELEVANT INTEREST IN THE QUALIFYING BUILDING
360E
General rule as to what is the relevant interest
(1)
The relevant interest in a qualifying building in relation to any
qualifying expenditure is the interest in the qualifying building to
5
which the person who incurred the qualifying expenditure was
entitled when it was incurred.
(2)
Subsection (1) is subject to the following provisions of this Chapter
and to section 360Z3 (provisions applying on termination of lease).
(3)
If—
10
(a)
the person who incurred the qualifying expenditure was
entitled to more than one interest in the qualifying building
when the expenditure was incurred, and
(b)
one of those interests was reversionary on all the others,

the reversionary interest is the relevant interest in the qualifying
15
building.
(4)
An interest does not cease to be the relevant interest merely because
of the creation of a lease or other interest to which that interest is
subject.
(5)
If—
20
(a)
the relevant interest is a leasehold interest, and
(b)
that interest is extinguished on the person entitled to it
acquiring the interest which is reversionary on it,

the interest into which the leasehold interest merges becomes the
relevant interest when the leasehold interest is extinguished.
25
360F
Interest acquired on completion of conversion

For the purposes of determining the relevant interest in a qualifying
building, a person who—
(a)
incurs expenditure on the conversion of a qualifying building
into qualifying business premises, and
30
(b)
is entitled to an interest in the qualifying building on or as a
result of the completion of the conversion,

is treated as having had that interest when the expenditure was
incurred.
CHAPTER 5
35
INITIAL ALLOWANCES
360G
Initial allowances
(1)
A person who has incurred qualifying expenditure in respect of any
qualifying building is entitled to an initial allowance in respect of the
expenditure.
40
(2)
The amount of the initial allowance is 100% of the qualifying
expenditure.

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
220

(3)
A person claiming an initial allowance under this section may
require the allowance to be reduced to a specified amount.
(4)
The initial allowance is made for the chargeable period in which the
qualifying expenditure is incurred.
360H
Premises not qualifying business premises or relevant interest sold
5
before premises first used or let
(1)
No initial allowance is to be made under section 360G if, at the
relevant time, the qualifying building does not constitute qualifying
business premises.
(2)
An initial allowance which has been made in respect of a qualifying
10
building which is to be qualifying business premises is to be
withdrawn if—
(a)
the qualifying building does not constitute qualifying
business premises at the relevant time, or
(b)
the person to whom the allowance was made has sold the
15
relevant interest in the qualifying building before the
relevant time.
(3)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to this section.
(4)
In this section “the relevant time” means the time when the premises
20
are first used by the person with the relevant interest or, if they are
not so used, the time when they are first suitable for letting for either
of the purposes mentioned in section 360D(1)(b).
CHAPTER 6
WRITING-DOWN ALLOWANCES
25
360I
Entitlement to writing-down allowances
(1)
A person is entitled to a writing-down allowance for a chargeable
period if he has incurred qualifying expenditure in respect of a
qualifying building and, at the end of the chargeable period—
(a)
the person is entitled to the relevant interest in the qualifying
30
building,
(b)
the person has not granted a long lease of the qualifying
building out of the relevant interest in consideration of the
payment of a capital sum, and
(c)
the qualifying building constitutes qualifying business
35
premises.
(2)
In subsection (1)(b) “long lease” means a lease the duration of which
exceeds 50 years.
(3)
Whether the duration of a lease exceeds 50 years is to be
determined—
40
(a)
in accordance with section 303 of ITTOIA 2005, and
(b)
without regard to section 360Z3(3) of this Act (new lease
granted as a result of the exercise of an option treated as
continuation of old lease).

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
221

(4)
A person claiming a writing-down allowance may require the
allowance to be reduced to a specified amount.
360J
Amount of allowance
(1)
The writing-down allowance for a chargeable period is 25% of the
qualifying expenditure.
5
(2)
The allowance is proportionately increased or reduced if the
chargeable period is more or less than a year.
(3)
The amount of the writing-down allowance for a chargeable period
is limited to the residue of qualifying expenditure.
(4)
For this purpose the residue is ascertained immediately before
10
writing off the writing-down allowance at the end of the chargeable
period.
360K
Meaning of “the residue of qualifying expenditure”
The residue of qualifying expenditure is the qualifying expenditure
that has not yet been written off in accordance with Chapter 9.
15
CHAPTER 7
GRANTS IN RESPECT OF QUALIFYING EXPENDITURE
360L
Grants affecting entitlement to allowances
(1)
No initial allowance or writing-down allowance under this Part is to
be made in respect of expenditure to the extent that it is taken into
20
account for the purposes of a relevant grant or relevant payment
made towards that expenditure.
(2)
A grant or payment is relevant if it is—
(a)
a notified State aid other than an allowance under this Part, or
(b)
a grant or subsidy, other than a notified State aid, which the
25
Treasury by order declares to be relevant for the purposes of
the withholding of initial allowances or writing-down
allowances.
(3)
For the purposes of subsection (2), “notified State aid” means a State
aid notified to and approved by the European Commission.
30
(4)
If a relevant grant or relevant payment towards the expenditure is
made after the making of an initial allowance or a writing-down
allowance, the allowance is to be withdrawn to that extent.
(5)
If the amount of the relevant grant or relevant payment is repaid by
the grantee to the grantor, in whole or in part, the grant or payment
35
is treated, to that extent, as never having been made.
(6)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (4) or (5).
(7)
Any such assessment or adjustment is not out of time if it is made
within 3 years of the end of the chargeable period in which the grant,
40
payment or adjustment was made.

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
222

CHAPTER 8
BALANCING ADJUSTMENTS
360M
When balancing adjustments are made
(1)
A balancing adjustment is made if—
(a)
qualifying expenditure has been incurred in respect of a
5
qualifying building, and
(b)
a balancing event occurs.
(2)
A balancing adjustment is either a balancing allowance or a
balancing charge and is made for the chargeable period in which the
balancing event occurs.
10
(3)
A balancing allowance or balancing charge is made to or on the
person who incurred the qualifying expenditure.
(4)
No balancing adjustment is made if the balancing event occurs more
than 7 years after the time when the premises were first used, or
suitable for letting, for either of the purposes mentioned in section
15
360D(1)(b).
(5)
If more than one balancing event within section 360N occurs, a
balancing adjustment is made only on the first of them.
360N
Balancing events
(1)
The following are balancing events for the purposes of this Part—
20
(a)
the relevant interest in the qualifying building is sold;
(b)
a long lease of the qualifying building is granted out of the
relevant interest in consideration of the payment of a capital
sum;
(c)
if the relevant interest is a lease, the lease ends otherwise than
25
on the person entitled to it acquiring the interest reversionary
on it;
(d)
the person who incurred the qualifying expenditure dies;
(e)
the qualifying building is demolished or destroyed;
(f)
the qualifying building ceases to be qualifying business
30
premises (without being demolished or destroyed).
(2)
Section 360I(2) and (3) (meaning of “long lease”) applies for the
purposes of subsection (1)(b).
360O
Proceeds from balancing events
(1)
References in this Part to the proceeds from a balancing event are to
35
the amounts received or receivable in connection with the event, as
shown in the Table—

TABLE: BALANCING EVENTS AND PROCEEDS

1 Balancing Event
2 Proceeds from event

40

1 The sale of the relevant interest.
The net proceeds of the sale.