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Capital allowances on residential property?

Capital allowances on residential property?

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First principles, capital allowances aren’t claimable on residential property (“a dwelling house”).  But, there are some exceptions in terms of multi-occupancy residential property.  For HMO (House in Multiple Occupation) residential properties, it’s my understanding that each bedroom needs to be ‘capable of full domestic occupation” (HMRC term seen in several HMRC Enquiry letters), and that this means washing & cooking facilities in each room.  It then follows that each room is a “dwelling house”, and so capital allowances may be claimed on the communal (non-dwelling house) areas.

In practice, the above scenario is very rare i.e. most HMO-type properties are 4-6-bed properties with a shared kitchen & bathroom.  As each bedroom does not have kitchen(ette) / shower / loo, it therefore follows that the whole property is a dwelling house, and so there are no capital allowances available at all. 

(And, not forgetting the April 2014 change that capital allowances need to have been pooled to be claimed – which will itself mean that most capital allowances claims on HMO-type property won’t be allowed)

I would appreciate any other members views on this, and in particular any interactions on this matter with HMRC as part of an Enquiry.

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27th May 2015 08:02

This is a specialist area...

... and there are a few people out there promoting themselves as specialists when they aren't!

CAs are always available where there are external common areas (eg lifts / lighting / communal TV arials etc) for a block of flats or similar.

In our experience HMRC accept CAs for common areas in a true HMO, even where there are shared facilities - so long as each bedroom is separately let to genuinely independent tenants.

What they don't accept is common areas where there is, in essence a two or three bedroomed house or flat which is shared by otherwise unconnected tenants. We are presently engaged in a battle with HMRC on a couple of such claims prepared by the "specialists", but we are leaving the correspondence to be handled by the specialists.

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By plummy1
01st Jun 2015 05:30

We don't touch HMOs

In our opinion the claiming of capital allowances in HMOs is now generally limited to common areas such hallways and landings. Prior to October 2010 it was common for HMO claims to be on all shared areas including kitchens and lounges etc.

Because of the limited scope for claiming on HMOs we no longer undertake claims because the cost of carrying out the required  "just and reasonable apportionment" on behalf of a client generally outweighs the potential tax benefits. I know of at least one company that promoted capital allowances claims on HMOs post October 2010 who have found themselves at odds with HMRC. 


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