Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN63 Extension of the Landlords Energy Saving Allowance

Who is likely to be affected?

1   Landlords who let residential properties and pay income tax or corporation tax.

General description of the measure

2   As announced at 2006 Pre-Budget Report, legislation will be introduced in Finance Bill 2007 to extend the current Landlords Energy Saving Allowance (LESA). Floor insulation will be added to the energy saving items which qualify for the allowance; a deduction of up to 1,500 will be available for each property rather than for each building; and the allowance will be available until 2015.

3   LESA will also be made available to corporate landlords who let residential properties, subject to state aid approval from the European Commission.

Operative date

4   Extensions to the existing LESA affecting landlords paying income tax will be made available for expenditure incurred on or after 6 April 2007.

5   The allowance will be made available to landlords paying corporation tax on expenditure incurred after state aid approval is received.

Current law and proposed revisions

Income Tax

6   Under section 312 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA), landlords who pay income tax can, when calculating their taxable profits, deduct the cost of acquiring and installing certain energy saving items in a dwelling house which they let.

7   The energy saving items are loft insulation, cavity wall insulation (both under section 312 of ITTOIA), solid wall insulation (under Statutory Instrument 2005/1114), hot water system insulation and draught proofing (both under Statutory Instrument 2006/912).

8   A further Statutory Instrument has been laid before Parliament under section 312 of ITTOIA so that expenditure on floor insulation on or after 6 April 2007 will also qualify for a deduction.

9   The maximum amount of expenditure for which a deduction can be made under section 312 of ITTOIA is currently capped at 1,500 per building under Statutory Instrument 2004/2664. A Statutory Instrument has been laid before Parliament so that the maximum amount is instead capped at 1,500 per property. This means that a maximum of 1,500 will now be deductible for each flat in a block of flats.

10 The new Statutory Instrument also revokes the previous Statutory Instruments (2004/2664, 2005/1114, and 2006/912) and includes all of their unchanged contents.

11 At present, the LESA only applies to expenditure incurred before 6 April 2009. Legislation in Finance Bill 2007 will extend the lifetime of the allowance until 2015.

Corporation Tax

12 Finance Bill 2007 will include legislation which will allow landlords who pay corporation tax to deduct the cost of acquiring and installing relevant energy saving items in a dwelling house which they let.

13 The deduction will be available for expenditure incurred after a date specified by Treasury Order. The legislation will take effect once state aid approval is received.

Further advice

14 If you have any questions about this change, please contact Ruth Curtice on 020 7147 2602 (email: or Craig Mason on 020 7147 2599 (email: A Regulatory Impact Assessment considering these changes has also been published today. Information about Budget measures is available on the HM Revenue & Customs website at