As with many reliefs, availability is contingent on certain conditions being met. For the deduction to be available, the person claiming the relief must be carrying on a property business which consists of, or includes, a dwelling house. The expenditure must relate to the acquisition or installation of qualifying energy saving items, either in a dwelling house or in a building containing a dwelling house.
However, if the energy-saving item is installed in a larger building that contains the let property (for example, in a block of flats), relief is only available if expenditure is incurred for the benefit of the let property.
The relief is only available for a limited period of time and to qualify expenditure must be incurred before 6 April 2015. Presumably, this is to encourage landlords to act sooner, not later!
To qualify, expenditure must be incurred wholly and exclusively for the purposes of the business and be expenditure in respect of which a deduction is otherwise denied only by virtue of the item being capital in nature. To prevent double relief for the same expenditure, where LESA is claimed, the landlord is prohibited from claiming capital allowances in respect of that expenditure.
Only certain types of expenditure qualify for relief. Eligible expenditure is on: cavity wall insulation; loft insulation; hot water insulation; draught proofing; solid wall insulation and floor insulation.
No relief is available in respect of expenditure on items not falling within the above list, regardless of whether the expenditure is designed to improve the energy efficiency of the property. This is also the case even if the expenditure relates to an improvement recommended by the Landlord’s Energy Performance Certificate. Relief for expenditure not attracting the LESA is given by means of capital allowances to the extent that these are available.
Relief is also denied if the expenditure is incurred in the course of construction of the house or if the house is on land in which the person incurring the expenditure does not have an interest. If the expenditure is incurred after the property is constructed but before it is let, relief is available providing that the person starts to carry on the property income business within six months from the date on which the expenditure was incurred.
The allowance is limited to a maximum of £1,500 per dwelling-house. Prior to April 2007, the limit applied per building. The current limit means that where there is more than one dwelling house in a building, the £1,500 limit is available in respect of each dwelling house. Thus, if a landlord has 1 building split into three flats, he would able to claim £1,500 in respect of each given a total possible deduction of £4,500.
Improving the energy efficiency of a building can be expensive. The LESA provides a mechanism for obtaining an immediate deduction against profits for qualifying expenditure and is designed to encourage landlords to improve the energy efficiency of their let residential property, so not only are you doing your bit for the environment but also your pocket too.
This article was first printed in Property Tax Insider in March 2010.