Care home development finance for new builds and extensions

Yes, in England. Approved Document B, the statutory fire safety guidance under the building regulations, was amended to provide for sprinklers in all new care homes irrespective of height, with the change taking effect on 2 March 2025. Schemes that had a building notice, initial notice or full plans application in before that date could follow the earlier guidance if work had started and was sufficiently progressed by that date or within the following six months. A development lender's monitoring surveyor will check the fire strategy and building control approval, and the cost of the system, its water supply and any tank or pump room belongs in the appraisal from the start rather than being found at tender.

Do existing care homes have to fit sprinklers?

Not under the building regulations, which apply to new building work rather than to buildings already in use. An existing home must have a suitable and sufficient fire risk assessment under the Regulatory Reform (Fire Safety) Order 2005, and the fire and rescue authority can require improvements where it finds the precautions inadequate. That assessment may recommend sprinklers or other measures, particularly where residents need help to evacuate. An extension or major alteration is new building work, so the fire strategy for the enlarged home is reviewed through building control, and lenders funding an extension will ask how it affects the existing building.

• New care homes. Sprinklers regardless of height.
• Start date. Guidance in effect from 2 March 2025.
• Existing homes. A fire risk assessment under the Fire Safety Order.
• Lender checks. Fire strategy and building control approval.

The government's circular on updates to Approved Document B confirms the change. Our pages on property development finance and buying a care home cover the wider route. Instant Quotes compares development lenders with healthcare appetite.

Yes, in two ways. The structure can qualify for the structures and buildings allowance, and the plant and machinery inside it, such as lifts, heating, nurse call systems, kitchen and laundry equipment, can qualify for plant and machinery allowances. The annual investment allowance gives full relief on up to £1 million a year of qualifying plant and machinery, and companies can also claim first year allowances on new equipment. Splitting a build contract between these categories is specialist work, usually done by a capital allowances adviser from the cost plan, and the relief reduces tax in the early trading years, which shows up in the cash flow a lender assesses.

Does the structures and buildings allowance apply to care homes?

Yes, where the home provides personal care to residents who need it. The allowance excludes buildings in residential use, such as houses and flats, but HMRC's guidance says a care home providing accommodation with personal care to people in need of it is not in residential use, so it qualifies. The relief is 3% of the qualifying construction cost a year, on a straight line basis, from when the building first comes into qualifying use. The cost of the land and of obtaining planning permission does not qualify, and retirement flats lived in by residents who do not receive personal care count as residential and fall outside it.

• Building. Structures and buildings allowance at 3% a year.
• Fixtures and equipment. Plant and machinery allowances.
• Not covered. Land and the cost of planning permission.
• Excluded. Retirement flats without personal care.

HMRC's capital allowances manual covers care homes and the structures and buildings allowance. Our article on asset finance and capital allowances and our asset finance page cover equipping the new home. See Instant Quotes for lenders that fund care equipment.

• A new purpose-built home on a cleared or greenfield site, usually designed around single en-suite rooms, small households of residents and wide circulation for hoists and wheelchairs.
• An extension to a trading home, adding bedrooms to an established business so central costs such as the kitchen, laundry and management are spread across more residents.
• Remodelling to replace shared rooms and shared bathrooms, which commissioners and self-funders increasingly avoid, often with a temporary loss of beds while work is done.
• Conversion of another building, such as a former hotel or office, into a registered home, which requires a change of use to Class C2 residential institutions under the planning use classes.

Retirement flats and other homes sold to individuals on long leases are residential development and outside our scope; this page deals with registered care homes owned and run as businesses.

Development facilities are drawn in stages. A first tranche typically goes towards the land or existing building, and the build money is released after a monitoring surveyor appointed by the lender confirms each stage of work. Interest is usually rolled up and repaid at the end rather than paid monthly, because the site has no income during construction. Our main property development finance page explains these mechanics in general terms.

The care-specific difference lies in the exit. A completed block of flats can be sold or let as soon as it is built; a completed care home has to be registered, recruit a full staff team and admit residents gradually. For months it will run at a loss while occupancy builds. Lenders therefore look at two values: the value on completion before trading, which is often modest, and the stabilised value once the home is full and trading at its expected profit. The gap between them is the fill-up risk, and somebody has to fund it.

Three regulatory threads run alongside the build, and lenders will want each one mapped onto the timetable.

Registration. A new home is a new location that must be registered with the Care Quality Commission in England, or the regulator for Wales, Scotland or Northern Ireland, before any resident moves in. Existing providers add a location by applying to vary their registration; a new company must apply as a provider, as CQC sets out in its guidance on applying as a new provider. The registered manager should be recruited well before completion. Homes for autistic people and people with a learning disability face particular scrutiny of size and setting, covered on our specialist care finance page.

Planning. Consent should be in place before a lender commits build funds. Expect conditions on parking, landscaping, construction hours and sometimes on the type of care to be provided.

VAT. Because care is generally exempt, operators cannot reclaim VAT on most costs. Construction of a new building used for a relevant residential purpose, which can include a care home, may be zero-rated if the conditions in HMRC's VAT Notice 708 on buildings and construction are met and a certificate is given to the contractor. Extensions to an existing home generally do not qualify unless strict conditions are met. Take specialist advice before contracts are signed, and budget on a VAT-inclusive basis if relief is uncertain.

Cost inflation and contractor failure are the obvious risks, but in care the bigger risk often sits after completion. A home that cannot recruit a manager and nurses, or that opens into a market where councils pay low fees, can burn through cash for far longer than forecast while rolled-up interest grows. Extending a trading home avoids much of the fill-up problem but means building around existing residents, with disruption, temporary bed losses and inspection risk. Personal guarantees are common on smaller schemes. If a scheme only works with optimistic occupancy, building a smaller first phase or delaying until trading elsewhere is stronger is often the better decision.