Help for living above the shop

Nick Ledingham on the advantages of converting part of the practice premises into flats

Conversion of Part of the Dental Practice Premises into Flats -

A Genuine Means Of Extracting More Value From Practice Premises

As part of its drive to help the dental profession, (or rather urban regeneration!), the Government, in the March 2001 Budget, introduced a scheme whereby a property owner can claim up to 100% Capital Allowances on the whole of the capital expenditure on the renovation or conversion of vacant or underused space above shops and other commercial premises to provide flats for rent. This is a genuine opportunity for some dental practices to utilise unused floor space in their practice premises without being penalised by the taxman.

The Finance Act 2001 is quite specific as to the type of property and flats that will be eligible for the 100% allowance.

• It must appear that, when the building was constructed (before 1 January 1980), the upper storeys were primarily for residential use
• The ground floor must be authorised for business use, and that specifically includes dental surgeries, but not those attached to the dentist's personal residence
• The building must not have more than 4 storeys above the ground floor
• The upper storeys must have been unoccupied or used only for storage for at least 1 year before the conversion work starts
• It must be possible to gain access to the flats without using the part of the ground floor used for business. Any expenditure incurred in providing this
• separate access will be eligible for the relief.
• Each flat must have no more than 4 rooms - bathrooms, kitchens and closets are excluded for this purpose
• Limits on weekly rental income have been set to exclude high value flats from the scheme
• The flats cannot be let to connected persons i.e. relatives
• The flats can only be let on an assured shorthold tenancy i.e. the lease can not exceed 5 years
  

Tax relief is given as a 100% deduction against income in the year that the qualifying expenditure is incurred. You can claim a lesser amount if your personal circumstances dictate. A 25% Writing Down Allowance will be available in future years on the balance of expenditure not claimed. These allowances are deducted from your income for Income Tax purposes.

If the property and flats are sold within 7 years of when the flats were first suitable for letting then there will be a balancing adjustment for capital allowance purposes i.e. dependent on the disposal proceeds the allowances given could be clawed back or additional allowances given.

The legislation is complex, and if you are genuinely interested in exploring this possibility further, then we would strongly recommend that you discuss your plans with your accountant first to ensure that your plans would be eligible for relief.

Nick Ledingham is a partner at Morris & Co, Chartered Accountants and Specialist Dental Accountants. He can be contacted at dentists@moco.co.uk or on telephone number 01244 328301.

Nick Ledingham looks at the best way of spending the £35m modernisation fund.

As most dentists will know arrangements for the distribution of the £35m dentistry modernisation fund were announced last year. Broadly the fund was set up to improve and upgrade NHS dental practices and to ensure that patients receive high quality NHS dental treatment in modern pleasant surroundings.

The fund has now been allocated to local health authorities who are responsible for distributing the money to local dental practices.

If the grant is used to improve the practice premises, by way of expenditure which would not be allowable for tax, then the grant is effectively received tax free!

Some dentists have already been contacted, specifying the terms and conditions of the grant.

For tax purposes a grant is treated in the same way as the expenditure to which it relates, by effectively reducing the expenditure on which dentists would otherwise get tax relief.

The astute reader will have by now realised that if the grant is used to redecorate the practice for example then it is effectively taxable in full!

However if the grant is used to improve the practice premises, by way of expenditure which would not be allowable for tax then the grant is effectively tax free!

If, therefore, there are a number of potential projects for which a dentist is considering applying for a grant, then he or she should ensure that they apply for a grant on property improvements, or projects upon which they would not get full and immediate tax relief, in preference to any other projects.

Even if there are no plans to improve or extend practice premises in the near future, then consideration should still be given to applying for grants for items which would otherwise attract capital allowances at the normal rate, as opposed to projects such as redecoration for which tax relief is available in full in the year in which expenditure is incurred.

Do remember that computer equipment (which can in some circumstances also include digital X-ray equipment) currently attracts 100 percent first year allowances, and so tax relief on this is available anyway in full in the year of expenditure.

The following examples of the types of expenditure that are referred to in this article may be considered useful:

1. Expenditure attracting no tax relief whatsoever

• Extensions to surgery premises
• Structural alterations to surgery premises
• Improvements to surgery premises (for example replacing old wooden windows with PVC double glazed windows)

2. Items which attract ordinary capital allowances (and hence do receive tax relief but only over a period of a few years)

• Carpeting
• Air conditioning
• Reception desk/counter
• Advertising signs
• Compressors
• Surgery equipment

Nick Ledingham is a partner at Morris & Co, Chartered Accountants and Specialist Dental Accountants. He can be contacted at dentists@moco.co.uk or on 01244 328301.