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Flat Conversion Allowances and Incorporation

Facts

 

The owner of a shop was planning to convert the basement of the property into a residential flat.

 

The costs of converting the property in this manner would normally be treated as capital and therefore not tax deductible against rental income from the flat.

Our Advice

 

We proactively advised the owner of the property, which was a company that it may be possible for the conversion to qualify for “Flat Conversion Allowances” (FCAs).

 

After our review of the facts and the relevant qualifying conditions we advised the client that it should be possible for the company to make a claim for FCAs on the conversion costs.  This means that significant costs should now be tax deductible against the company’s rental income.

 

Also, we advised that if the owner’s retail business were incorporated into the company, then this would mean that the conversion costs could be set against the profits of the business.  In this case then at least one year’s retail profits could be sheltered totally from tax.  The profits of the business could also be sheltered from NI.

Outcome / Savings

 

Implementation of the planning is ongoing and the potential tax saving for our client is estimated at £23,000 over a five-year period.