05/05/2025
Updated on: 07/09/2026
- Mark Anthistle

Commercial Property Fit-Outs & Capital Allowances

From Shell Specifications to Savings

With the number of fit-out projects seemingly on the rise and more businesses opting for leased spaces, the terms "fit-out," “shell and core”, "Cat A," and "Cat B" are becoming part of everyday business language – but what do these terms actually mean and, more importantly, how can you use capital allowances to grow company value by improving your profitability and/or strengthening your balance sheet?

Read on as we provide the essential insights you need to navigate property fit-outs and unlock valuable tax relief through capital allowances.

Shell & Core

Imagine a blank canvas. That's essentially what "shell and core" represents. It's the fundamental structure of a commercial building, including:

Structure: The main frame, roof, and external walls.
Common Areas: Typically, the entrance lobby, stairwells, and lift shafts.
Basic Services: Incoming mains services such as electricity, water, and drainage, often brought to a central point within each floor.

Think of it as the developer providing the essential framework, leaving the internal space ready for a tenant's specific requirements.

Understanding what constitutes a true shell is the first step in determining the potential capital allowances... Therefore, when assessing a property described as 'shell and core' for capital allowances, it's crucial to look beyond the label and understand the actual state of the building. There are some cases where a shell state truly does mean the property consists of bricks and mortar, however there are often times where a client will tell me the property is a shell, but it’s still got toilets, sinks and lighting throughout, and therefore is more than just a structural shell.

Why is the above important you may ask?

There is no formal definition of what constitutes each of the different category of works, so there are times where the terminology is used interchangeably, hence why we will always look to understand the full extent and nature of fit-out works.

The structural elements of a fit-out qualify for the Structures and Buildings Allowance (SBAs), which is a flat rate 3% deduction against taxable profits each year. SBAs will be available until the allowances are exhausted, or the asset is disposed of (i.e. in the instance where a lease is terminated, or the property is sold).

Whereas fixed installations/assets such as lighting, toilets, hot and cold water supplies, etc., will qualify for Plant and Machinery Allowances (PMAs), with an up to 100% deduction against taxable profits (130% if in the year where Super Deduction was available – see our blog here), if claimed in the year the costs were incurred.

There’s no need to worry if you miss the opportunity to amend the relevant tax year though, the allowances will not be lost, instead you’ll simply utilise Writing Down Allowances (WDAs) and claim relief at 18% and 6% each year depending on the asset category.

Category A (Cat A) fit-out

Building on from the Shell and Core fit-out (quite literally – yes pun intended), a Cat A fit-out takes things a step further, providing a more usable starting point for tenants.

While definitions can vary slightly, it generally includes:

Raised Access Floors: Providing space for cabling and ventilation.
Suspended Ceilings: Incorporating basic lighting and potentially some HVAC infrastructure.
Finished Walls: Often plastered and ready for decoration.
Basic Mechanical and Electrical Services (M&E): Distributed inside the tenant's demise.
Fire Detection and Prevention Systems: Typically installed throughout the building.
Basic Sanitaryware: In communal areas.

A Cat A fit-out offers a functional but generic space, ready for a tenant to customise to their brand and operational needs.

The inclusion of these additional elements in a Cat A fit-out opens further opportunities for capital allowances claims...

Whilst there are still elements which would not qualify for PMAs, i.e. plastering and painting costs, it is clear that there are many more aspects of a Cat A fit-out, including lighting, heating, ventilation, and air conditioning (HVAC) systems, which are eligible for such capital allowances.

Components such as raised access floors will typically qualify for SBAs instead.

Important Points Regarding PMAs in Cat A Fit-Outs

When looking at the qualifying plant and machinery within a Cat A fit-out, there’s a clear theme in that many items would be considered to be “integral features” and would fall within the “special rate pool.” In simple terms, different items of plant and machinery are categorised into 1 of 2 pools, if it’s a special rate pool item and you miss the 100% Annual Investment Allowance (AIA) deadline, you’ll be restricted to claiming relief at 6% per annum. So, if you’re doing a Cat A with substantial HVAC and electrical systems, it’s preferable to act sooner rather than later.

Category A+ (Cat A+) fit-out

Cat A+ is a relatively new concept, sometimes known as “plug and play,” bridging the gap between Cat A and Cat B. It essentially takes a standard Cat A fit-out and adds some "tenant-ready" elements. This might include:

Installed Lighting: Beyond basic fittings, potentially more design-led options.
Finished Floor Coverings: Such as carpets in office areas.
Kitchens and Breakout Areas: Fitted kitchens, tea points, and comfortable breakout spaces.
IT Infrastructure: Basic IT infrastructure, power points, and data connectivity.
Installed Blinds: Providing immediate privacy and light control.

The idea behind Cat A+ is to reduce the upfront costs and disruption for tenants, offering a space that's closer to being move-in ready.

It sounds like there’s even more tax saving opportunities here?

And you’d be absolutely correct in thinking so! As with a Cat A fit-out, Cat A+ offers even more qualifying installations, and the great news is that some of these installations fall into the “Main Rate Pool,” i.e. they will qualify for 18% WDAs each year if the AIA is missed.

If you’re carrying out a Cat A+ fit-out and incurring costs on carpets, fitted kitchens and IT infrastructure, these are the kind of items which will qualify.

Category B (Cat B) fit-out

This is where a tenant's unique vision comes to life. A Cat B fit-out involves the customisation of a Cat A, or shell and core space to meet the specific operational requirements and branding of the occupier. This typically includes:

Partitioning: Creating offices, meeting rooms, and other designated areas.
Specialised Flooring: Tailored to different areas, like carpet in offices and hard flooring in break-out spaces.
Detailed M&E Installations: Including power outlets, data cabling, and specific lighting designs for different zones.
Kitchen and Break-Out Areas: Including appliances and fixtures.
Branding and Decor: Paintwork, signage, and other aesthetic elements.
Specialist Installations: Such as server rooms, laboratories, or retail displays, depending on the business.

A Cat B fit-out is all about creating a workspace that perfectly suits the tenant's needs and reflects their brand identity. Frequently this involves working closely with a contractor to plan and design a tailored solution to meet specific functional and aesthetic requirements.

Other Capital Allowances Considerations

While understanding the different fit-out categories is essential, there are several aspects related to capital allowances that are worth mentioning and will be explored in detail in future articles:

Landlord Contributions to Tenant Works: It's not unusual for landlords to offer tenants a contribution towards their fit-out costs, with a common scenario being that tenants will pay for some, if not all, of the works in exchange for a rent-free period. The treatment of these contributions for capital allowances purposes can be complex and requires careful consideration for both parties.

Capital Allowances Upon Vacating a Property: If you've claimed capital allowances on a fit-out, vacating the property may lead to tax adjustments that need to be addressed. Understanding these implications is essential for accurate tax reporting.

Best Practice for Cost Record Keeping: Having detailed and accurate records of fit-out costs is paramount for successfully claiming capital allowances. Implementing robust cost-tracking procedures from the outset is highly recommended.

Working With a Specialist Can Make a Big Difference: Sometimes fit-out costs can be bundled together in final contract sums and valuations, making it difficult to split out the qualifying aspects of each project. Having a specialist who understands the different nuances of fit-out projects, as well as being an expert in splitting out these qualifying costs can make all the difference in ensuring your tax relief is maximised.

How we help

At Bonham & Brook, we help both landlords and tenants identify and claim the maximum amount of capital allowances they are entitled to. If you’re in the process of carrying out a fit-out project or have carried one out in the past and have not engaged a specialist capital allowances consultant to maximise your claim, then get in touch today to find out how we can support your business and maximise your tax savings.