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Capital Allowances and HMO

It has been suggested that Capital Allowances can be claimed on a property operated/used as a HMO (House with Multiple Occupancy).   I believe this is on the basis that communal areas are not regarded as dwellings.

Can readers help with any informatiion on this subject, in particular suggesting which items are likely to atttract capital allowances and at what rate are these allowable?   Can claims be back-dated (and tax repayments claimed) for up to 6 years in the event a property of that nature has been acquired during that period?   What happens if a property on which capital allowances were claimed is sold?   Is tax on the capital allowances effectively clawed back by HMRC in any way?  Are there any CGT implications - for example are any capital allowances claimed applied in an effective reductiion of the aquisition costs of the property?

Any comments and assistance will be gratefully received.

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10th Feb 2010 16:54

Lots of information!

Yes you are correct that capital allowances should be available on assets within the communal areas of these types of properties.

The allowances should be available for those items which can be regarded as plant and machinery p&m), e.g heating systems, sanitaryware, fire & smoke alarms, electrical installations (whole or part depending on when expenditure incurred) etc.

Qualifying expenditure may be added to either the main pool (25% writing-down allowance (WDA)) for expenditure pre April 2008 and to either the main pool (20% WDA) or the special rate pool for integral features (10% WDA) for expenditure post April 2008.

There is no time limit on what qualifying expenditure can be claimed, only the tax return in which the WDA can be claimed, i.e. allowances are utilised in the first available tax return that is still open and able to be amended.  The only proviso is that the assets on which any claim is being made must still be owned in the return to which the claim relates.

If a property on which capital allowances have been claimed is sold then a disposal value is required to be brought into account which will ordinarily require an adjustment to the relevant capital allowances pool.  The disposal value can be at any level up to the original expenditure incurred. It is possible for certain assets to "fix" the level of the disposal value by way of a statutory election.

If the property is sold at a gain then there is no interaction between capital allowances and CGT, with the gain being calculated in the normal way.  However, if the property is sold at a loss then any allowable loss is reduced by the amount of the allowances received.

I appreciate there is a lot here and I would be happy to go through this in more detail should you wish and can be contacted on 0118 933 2588 or at [email protected]

 

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12th Feb 2010 00:01

HMO & capital allowances

Can anyone advise what happens if 10% w & t may have been claimed in repect of an HMO that was previously just treated as furnished accomodation?

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