When does capital expenditure on constructing a building qualify for capital allowances under section 294?

Under section 294 of the Capital Allowances Act 2001, capital expenditure on constructing a building qualifies for allowances if the person still holds the relevant interest in the building, or if the relevant interest was sold only after the building was first put to use in the United Kingdom.

What happens if the relevant interest in the building is sold before the building is first used?

If the relevant interest in the building is sold before the building is ever used, section 294 does not treat the construction expenditure as qualifying expenditure. The section is designed to restrict allowances in cases where the builder disposes of the interest prior to the building being put to any use.

Can construction expenditure still qualify if the relevant interest is later sold after the building has been used?

Yes. Even if the relevant interest has been sold, the original capital expenditure on construction remains qualifying expenditure provided the sale occurred only after the building was first used. This ensures allowances are available to the person who constructed and initially used the building.

What is the purpose of section 294 of the Capital Allowances Act 2001?

Section 294 ensures that capital allowances for construction costs are available to the person who built and used the building. It prevents allowances being claimed where the relevant interest was sold before the building was ever put to use, targeting genuine construction and use scenarios.

Capital Allowances Act 2001 section 294

Capital expenditure on construction of a building

Section 294 establishes when capital expenditure on constructing a building counts as qualifying expenditure for capital allowances purposes.

Capital expenditure incurred on constructing a building may qualify for capital allowances
The expenditure is qualifying expenditure if the relevant interest in the building has not been sold
If the relevant interest has been sold, the expenditure still qualifies provided the sale took place only after the building was first used
This covers the straightforward scenario where the person who built the building also used it, regardless of any subsequent sale

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member