The year by year deduction schedule

Symbol	Parameter	Source
Sa	Eligible expenditure	The bill of quantities, separated by eligibility and by deduction
M	Applicable cap	The regime of the deduction claimed, per property unit
U	Number of property units existing at the start of the works	Documented land registry position
a	Rate for the tax year	The budget law, according to the use of the unit
n	Number of annual instalments	The regime of the deduction claimed
I	The claimant's annual gross tax	The taxpayer's tax position
T	Annual cap on deductions for higher incomes	The applicable regime, if the claimant falls within it

Two cautions.

On Sa, eligible expenditure is not the total cost of the works. It is the set of items the regime of the deduction claimed covers, separated in the bill of quantities when it is prepared rather than reconstructed afterwards.

On U, the count is made on the units existing at the start of the works. A subdivision during the works does not increase the relevant number, a merger preserves the starting one.

The procedure runs through five steps, and the order is binding. Reversing the steps produces a different amount.

First step, the taxable base.

B = min ( Sa ; M × U )

The base is the lower of the eligible expenditure and the cap multiplied by the number of units. It is the step missing from most amateur estimates, which apply the rate directly to the expenditure.

Second step, the total deduction.

D = B × a

The rate is that of the year in which the expenditure is incurred, and depends on the use of the unit. On works spanning two tax years with different rates, the calculation must be made separately for each share of expenditure.

Third step, the annual instalment.

q = D / n

This is the amount the claimant will deduct each year. It is this figure that should be communicated, not D.

Fourth step, the capacity check.

For each of the n tax years: q ≤ I

Where the inequality does not hold, the excess part of the instalment is lost and cannot be recovered. The check must be made for every year and not only for the first.

Fifth step, the check against the higher income cap.

If the claimant falls within it: q + the year's other deductible charges ≤ T

The cap operates on annual deductible expenditure and not on the whole cost of the works, because for charges spread over several years only the instalment for the year counts. The instalment for the year is a tenth of the expenditure incurred.

On works running across several tax years the procedure is applied year by year, with two coordinating rules. The two rules concern the cap and the rate.

The cap is single across the project: expenditure from different years is aggregated for the purposes of the first step, and exhausting the allowance bars relief on later expenditure. The test is applied to the aggregate rather than to each year.

The rate is annual on the expenditure: each share of expenditure follows the rate of the year in which it is incurred. Expenditure moved to another year can therefore change rate.

It follows that the annual instalments generated by different years overlap in the claiming schedule. Works spanning two tax years produce two ten year series offset by one year, and the capacity check must be made on their sum.

On works covering common parts the procedure is applied owner by owner. An aggregate figure is one no single owner achieves.

Each owner's eligible expenditure is the share attributable to them under their ownership share or whatever different criterion has been resolved. The share is attested by the building manager's certificate.

The rate is determined by the use of their unit: different rates coexist within the same building. The determination is made unit by unit.

The capacity check is individual, and an owner without capacity loses their instalment without affecting the others. The lost instalment is not redistributed among the others.

It follows that the result of the calculation is not a single figure for the building. What is presented to the general meeting is the expenditure, the allocation criterion and the method, not the net benefit.

The right form of communication follows from the structure of the calculation. Each element should be shown with the assumption it rests on.

Present the eligible expenditure, the cap applied with the number of units assumed, the rate and the assumption about use it rests on, the total deduction and the annual instalment. The presentation should carry the assumptions made.

State that actual use depends on the claimant's tax capacity and, where relevant, on the higher income cap, and refer the matter to their tax adviser. The reservation should be given in writing rather than orally.

What should not be presented is a single net figure described as a discount. It is the format clients ask for, and it is the one exposing the professional on ground that is not theirs.