Capital Allowances Case Summary: Bowerswood House Retirement Home v HMRC [2015]

Release Date: 26 January 2015


Whether a swimming pool enclosure is plant and the appropriate basis of apportioning the purchase price to qualifying plant and machinery for capital allowances purposes.

The FTT found the enclosure was not plant. They also found the apportionment formula is a “just and reasonable apportionment”.


Bowerswood House Retirement Limited (the taxpayer) purchased a retirement home in 2004 for £940,000. Within the grounds there is a swimming pool that is fully enclosed by a conservatory. A claim was made for capital allowances based on the purchase price including on the swimming pool and the enclosure.

HMRC refused the claim for capital allowances on the conservatory type enclosure and were unable to resolve the quantum of the claim for capital allowances on the swimming pool.

The taxpayer argued the conservatory enclosure was “essential to the enjoyment of the swimming pool” so the setting of the enclosure should be considered. The FTT found that the conservatory was “plainly a building or fixed structure” and the setting of the enclosure does not change this. They also did not agree with the argument that the enclosure counts as thermal insulation of industrial buildings under s23 Capital Allowances Act 2001 (CAA2001).

The next issue was the basis of apportioning the purchase price to calculate the amount of qualifying expenditure especially in regards to the swimming pool.  CAA 2001 does not identify the best method of apportionment for the cost of plant and machinery. Under s562(3a) the apportionment should be “just and reasonable”.

The taxpayer used an “asset by asset basis”. This basis takes the value of the land and the replacement value of the assets and the left over consideration gives the cost of the building. The FTT found this method flawed, as the assets are not all valued on the same basis.

HMRC used the apportionment formula. This approach uses the replacement cost of all assets on the same basis and does not leave some assets valued by way of left over consideration.

The FTT Found the apportionment formula is a “just and reasonable apportionment” basis and the “asset by asset basis” is not.

The appeal will continue in relation to the value of swimming pool.

What this means

The apportionment formula has been accepted as being “just and reasonable” as per s562(3a) CAA2001. This is the apportionment basis used by Lovell Consulting and has been recommended for use by the Valuation Office for many years. The case highlights the need to provide fully detailed capital allowances claims where costs are able to be substantiated.

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