Capital Allowances – Reduced tax bills for HMO owners?

by Property 118

5 years ago

Capital Allowances – Reduced tax bills for HMO owners?

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Capital Allowances – Reduced tax bills for HMO owners?

Calculator on refund formPart 1 of 2 written by Bill Loryman

HMRC calculates that over 90% of properties have not claimed against their Capital Allowances. Recent changes by HMRC still mean that Capital Allowances can be claimed against the Plant and Machinery (such as fixture and fittings) or assets within the ‘non-dwelling areas’ of your property. These can be used to obtain a tax refund or to reduce your current year’s tax liability.

If you own a House in Multiple Occupation (Multi-let / HMO’s / Student lets), it is very likely that you are entitled to unclaimed Capital Allowances for the communal (non-dwelling) parts of your investment property and many of the associated fixed assets.

Capital Allowances have been around since 1878, yet they are almost never claimed, or often claimed incorrectly. In fact HMRC have said that over 90% of eligible properties have not claimed the tax that is due. Is your investment property one of them?

Anyone who has an investment property is entitled to claim these allowances.
•Key Worker accommodation
•Dentists / Doctors shared properties
•Student Lets
•Multi-Lets
•Professional Lets
•Licensed and unlicensed HMO’s
•Holiday Lets (UK & EU)

Capital Allowances – what are they?

They are Plant & Machinery allowances that relate to the tax relief associated with certain qualifying items, such as fixture and fittings or assets within the ‘non-dwelling areas’ of HMO, multi-occupancy properties and student lets/ halls of residence.

In each year that you buy a property, you can deduct up to £250,000 of your capital outlay (purchase cost) associated with these non-dwelling areas. Once these items have been identified, valued and documented, you can reclaim previously paid Income tax, reduce your current year income tax liability, or roll forward the allowances until such time when they are required. This is unlike normal rental losses which can only be rolled forward until such time that the property makes a profit, Capital Allowances claimed on the property, are ‘set-off’ against any income stream.

Part 2 will include details of who might be able to claim and the process.

Bill Loryman is the Managing director of HMO Tax Limited and has 20 years experience in the property world involving franchising, licensing, acquisitions and property development.



Comments

Jason Holden

5 years ago

This is the result of many 'buy to let' private landlords not treating this as a business venture and looking to save money by not paying a good accountant.

The list of what capital allowances can be claimed on is significant, things like heating and cooling systems, security systems and many other items that many treat as part of the buildings costs when they are actually available for capital allowances.

Good article, bringing this area to the attention of the readers.

Jason

Bill Loryman

5 years ago

Hi Jason,
Thanks for your comment, if we can help in anyway or perhaps work together please contact me Bill Loryman 01327 340408

5 years ago

Most Accountants believe it or not, either do not understand Capital Allowances, or unless Landlords are instructing a large Accountancy practice (unlikely), they (the Accountant) will not have the facilities or expertise to undertake the necessary Survey required to assess the amount that can be claimed from HMRC. As such they would not be in a position to make a claim on a Landlords behalf. Best to obtain specialist help in my experience, from a company that can advise your accountant. Be under no illusion, the amounts of reclaimable/ allowable tax can be considerable. This is an allowance (not a tax loophole) that is well worth investigating!

Jason Holden

5 years ago

You are right Ralph, in part, we have our own in house Chartered Tax Adviser who has experience in this area as well as contacts within other specialist firms, so as you can see you certainly do not need to engage a big firm, just the right one.

Jason

matchmade

5 years ago

HMRC's website cites water- and energy-saving appliances and cars with CO2 emissions below 110 g/km driven as suitable for a Capital Allowance claim, but not items such as replacement roofs or shower pumps. On my understanding the latter can be counted against one's current rental income as long as the roof or shower is a replacement, not an improvement, in which case the expenditure only counts against capital gains on eventual sale of the property.

Presumably then a replacement boiler could come under the Capital Allowance definitions? I counted my boiler expenditure against my rental income in the tax year 2011-12 when it was installed, but as I already have accumulated substantial losses on my rental investment business, I thought I wasn't really gaining any advantage, except to defer the date when I eventually have to pay tax on my rental income (I am now generally in profit).

From what Bill has written, I conclude that I could instead have counted the boiler expenditure against my *other* sources of income in 2011-12, such as an employed salary, for example, and could therefore be entitled to an income tax refund. I'd always assumed that employed income, company dividends (e.g. as a director), savings interest and so on were taxed entirely separately from rental income.

In which case, is it possible to revise the Property pages of one's past Self Assessment tax returns to (re)define certain valid expenditures like a new boiler or water softener as Capital Allowances, and bring forward those expenditures to reclaim salaried income tax paid in 2013-14?

matchmade

5 years ago

I should have mentioned that my rental properties are HMOs: one on a personal basis and two within a company.

Sally T

5 years ago

We have 3 buildings - a licenced HMO, an unlicenced HMO and a third that's split into 4 flats with a large communal area.
My questions are, what is it we can claim for ? why do we need a survey ?
Our rental income is our only income. If our accountant doesn't know anything about this can anyone recommend someone that does (lincolnshire). Thank you 🙂

Joe Bloggs

5 years ago

when i looked into this with other accountants specialising in this area their fees were astronomical and they wouldnt agree a no-rebate, no fee agreement. i spoke to hmrc who implied chances of success were low. if this is so straightforward will bill agree no win no fee basis?

Robert M

5 years ago

You know what? I have never claimed capital allowances for items in a rental property since I have come to the conclusion that the time and effort is not worthwhile. The amounts may attract some though.

If you want an example, suppose that you buy a house to rent out and install a central heating system with eight radiators as the existing arrangements just will not do. If three of the eight radiators are in shared areas you could claim three eighths of the cost as a capital allowance. However this only applies if you let the rooms separately. If you rent the wholes house of on a joint tenancy to students then it does not apply.

Jason Holden

5 years ago

It is true for the amounts may not be large when talking small residential, but if you consider a commercial property, nursing homes etc then the amounts can be significant.

Jason

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