Business premises renovation allowance only covers the cost of the physical conversion work and other amounts – such as the acquisition of the land – which are sufficiently closely related.
The Court of Appeal has considered appeals concerning the sums to be allowed as BPRAs in London Luton Hotel BPRA Property Fund LLP v Commissioners of HM Revenue and Customs [2023] EWCA Civ 362, a decision which will be relevant to other claims for BPRA totalling in excess of £100m of expenditure.
The LLP claimed almost £12.5m in respect of the conversion of its former flight training centre near London Luton Airport into a Ramada Encore Hotel for the year ended 5 April 2011. HMRC disallowed around £5.26m. The LLP claimed that the full amount reflected expenditure it had incurred under the development agreement for the conversion of the property.
HMRC argued that the total sum incurred needed to be broken down and the constituent parts considered. The FTT and UT both agreed but reached different conclusions on the claims.
The BPRA legislation – Part 3A of the Capital Allowances Act 2001 – was introduced to incentivise the bringing back into use of unused business property in areas designated as disadvantaged.
A 100% initial allowance was available if a person incurred capital expenditure “on, or in connection with” the conversion of a building in a deprived area into premises used or available for the purposes of a trade, profession or vocation or as offices.
The Court of Appeal considered that the words “on or in connection with” must be construed in their statutory context and the purpose of the legislation. The target of the measure was not a functioning building open for business but the works of conversion, renovation or repair which led to it being used or available.
The development agreement was one of a number of documents entered into at the same time the overall effect of which was to confer a number of important additional benefits on the LLP.
Sums paid to the developer went beyond the development obligation and included provision of the property and other elements which did not qualify for BPRA.
The following payments were not “in connection with” the conversion: £2m paid into a capital account to support the LLPs borrowing; payments to service interest under a mechanism to which there was no commercial purpose; fees to IFAs and promoters to encourage investment in the LLP and costs to operate a business under a franchise following conversion of the property.
Louise Clark is a property law consultant and mediator
