In a pivotal ruling, the Court of Appeal has confirmed that pre‑construction or pre‑development costs can qualify for capital allowances under section 11 of the Capital Allowances Act 2001. This decision brings welcome news for businesses involved in major infrastructure, property development, and plant and machinery investments. 

What Happened?

The case, Ørsted West of Duddon Sands (UK) Ltd & others v HMRC [2025] EWCA Civ 279, revolved around offshore windfarm development. Ørsted had incurred over £45 million on preliminary surveys (such as geotechnical, environmental, ornithology, noise, radar, and landscape studies) prior to installing the turbines. They claimed these costs as capital allowances. HMRC disagreed.

The First-tier Tribunal (FTT) allowed certain costs; the Upper Tribunal (UT) rejected them all. However, the Court of Appeal (CoA) overturned the UT’s decision in a landmark judgment. 

CoA’s Ruling: What Qualifies?

Lord Justice Newey confirmed that pre-contract studies can count as qualifying expenditure when:

1. They objectively, with hindsight, informed the design or installation of plant or machinery.

2. The related plant or machinery was ultimately acquired or constructed.

3. The spending wasn’t merely due to characteristics unique to the taxpayer.

Crucially, this includes bespoke plant design contexts, unlike off-the-shelf assets, meaning the boundary isn’t limited to physical installation alone.

Why It Matters Particularly for Property & Infrastructure Projects

While this case involved offshore windfarms, its implications stretch into commercial property development, construction projects, and any capital-intensive ventures, such as:

• Mixed-use developments

• Large residential or commercial refurbs

• Railway, road, and utility infrastructure

This means that surveys and design studies made before building can potentially qualify for capital allowances. Therefore, keeping records is crucial, whilst waiting for the final Supreme Court judgement.  

Practical Takeaways for Property Developers

1. Review pre-construction costs
   Examine whether preliminary studies and design fees meet the CoA criteria.

2. Keep comprehensive documentation
   Record the purpose, date, and author of each report or survey.

3. Analyse bespoke vs standard assets
   Tailored plants (e.g., custom HVAC, lifts, M&E systems) are more likely to qualify.

4. Consider phased capital allowances claims
   Align pre-construction and post-construction claims for maximum relief.

What’s Next?

HMRC has applied for Supreme Court permission to appeal, meaning the case may not be finally settled yet. Meanwhile, the Corporate Tax Roadmap 2024 signals possible HMRC consultation on pre-development costs. So now is the time to prepare and engage with your advisor, and ensure astute record keeping of preliminary costs involved. 

Why Seek Expert Advice

Navigating capital allowances can be complex, especially when bridging pre-development and capital expenditure. Professional input ensures:

• Accurate interpretation of section 11(4) criteria

• Proper apportionment between eligible and ineligible costs

• Full compliance with HMRC rules, maximising relief and audit resilience
  

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CPA Tax specialises in uncovering missed capital allowances in commercial property. 

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