Capital Allowances – Reduced tax bills for HMO owners?

Part 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.