06: Flat conversion allowances

A 100% first year allowance is available for expenditure on converting or renovating unused space, or space used only for storage, above certain types of commercial premises into self-contained flats for residential letting. The allowance is given against letting income.

There are several conditions, the main ones being:

• The construction of the building must have been completed before 1 January 1980.
• The building must not have more than four storeys above the ground floor.
• The flat must not have more than four rooms, excluding any kitchen, bathroom or small hallway and must not be a high value flat – based on the expected rent for a flat of that size.

The allowance is given as a deduction from letting income. Any unrelieved excess can be set against other income of the same or the following year.

A balancing charge, or occasionally an allowance, is made if certain events, for example a sale or grant of a long lease, occur within seven years of the time when the flat was first suitable for letting as a dwelling.