Capital allowances when refurbishing a building

When a property owner or tenant undertakes the refurbishment of a building, there are two key questions that need to be asked in order to establish the tax treatment of the expenditure.

Firstly, is the expenditure a repair, an alteration or an improvement to the property?  The former is a revenue cost with a 100% deduction in the year it is incurred, whilst the latter two are usually capital costs.

Secondly, if it is a capital item, is it expenditure on plant and machinery or does it qualify for some other form of Capital Allowance?


A repair is replacing an item in the same position on a like for like, or current modern equivalent, basis.  For example, replacing existing timber windows with modern UPVC double glazed units are a revenue item even though they may be seen as an improvement.

It should be noted, however, that where more than 50% of the total replacement cost of an integral feature is replaced in any 12 month period then following rules introduced in April 2008 item has to be treated as capital (CAA 2001, sections 33A & B) and will therefore only receive the annual writing down allowances given on special rate pool assets – but see assets that qualify under the Enhanced Capital Allowances regime below.

Integral features comprise:

  • Electrical systems, including lighting;
  • Cold water systems;
  • Space or water heating systems, powered systems of ventilation, air cooling or purification and any floor or ceiling comprised in such systems;
  • Lifts, escalators and moving walkways.
  • External solar shading

Where the expenditure cannot be treated as a repair, then it has to be established whether it qualifies as plant or machinery.

Often these works will be included within the substructure or superstructure elements of the works or could just be within much larger lump sum costs.

Obtaining copies of the construction drawings, as well as before and after photographs and a close liaison with the building contractor are all essential to preparing a detailed claim for incidental works.  This can be time consuming but section 25 works can often add up to more than 50% of the overall claim so the investment can really pay dividends.

One further point on incidental items, is that they should be allocated to the relevant pool based on the assets they relate to.  For example a new lift shaft would be in the special rate pool for integral features.
The starting point is CAA 2001, Section 23, list C which sets out the main qualifying categories.

The rate at which allowances are given on different qualifying items will depend on the nature of those items. The differences can be summarised as follows;

  • Expenditure on energy saving or water saving technologies that meet the specific Enhanced Capital Allowances regime – 100% first year allowance
  • General plant and machinery fixtures – 18% on a reducing balance basis.
  • Integral features and Long Life Assets – 8% on a reducing balance basis.


There is, however, a major difference with refurbishment schemes in that items of a structural nature that would not usually qualify, can be claimed if the works are “incidental” to the installation of the plant or machinery within an existing building - see CAA 2001, section 25.

In 2007 there was a test case on these section 25 works – JD Weatherspoon vs HMRC - which gave some further insight on claiming incidental items.

Typical items that could be classified as incidental works include;

  • Installing a new lift shaft
  • Demolition and rebuilding of walls to gain access for large items of plant or machinery
  • Construction of steel or concrete platforms to support plant items
  • Strengthening of existing floors to take increased loadings due to plant installations
  • Drainage installations where new kitchens or toilets have been installed


The main problem with claiming “incidental works” is one of identification.

Firstly it is necessary to have a close understanding of the project works so that any potential items can be investigated.

Secondly, once the items have been established the costs of the works have to be calculated.

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