Business premises renovation allowance claim

In its 2010-11 tax return London Luton Hotel BPRA Property Fund LLP (LLH) claimed business premises renovation allowances of £12 478 201. This was the amount paid under a contract with a property developer for the conversion of a flight-training centre near London Luton Airport into a 124-room hotel.

LLH said the full sum was eligible because it was negotiated at arm’s length and used for works ‘on or in connection with the conversion renovation or repair’ of a qualifying building into qualifying business premises.

HMRC disallowed £5 255 761 on the basis that the following elements did not qualify:

• interest;
• capital account;
• independent financial adviser fees;
• promoter fees;
• legal fees;
• franchise costs;
• fixtures fittings and equipment and other non-qualifying amounts; and
• residual amount/profit.

The First-tier Tribunal considered each item. It said the interest amount also referred to as a licence fee was necessary to enable the contractors to enter the property for the purposes of...