Capital Allowances Tax Relief for HMO owners
18 November 2009
15 Comments
I recently met up with a commercial accountant who I've known for a while and he told me about this amazing new tax relief scheme for anybody who owns a HMO.
I'll hand it other to Arthur to tell you more:
If you own a HMO, you may be able to take advantage of Capital Allowances Tax relief, to mitigate your previous and current year’s tax liability.
Whether you are an armchair property investor, entrepreneur, or own just 1 HMO property, you could mitigate your current liability, and also get a refund from HMRC for previously paid tax!
Capital Allowances – what are they?
Plant & Machinery Capital Allowances, relate to the tax relief associated with certain qualifying items within the communal areas of HMO properties.
Having recently come into the limelight do to a technical clarification by HMRC, these allowances are an extremely valuable tax relief. You can reclaim tax paid up to 5 years previously.
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, depending on how long you have owned the property.
There is no time restriction on claiming – a property you have owned for 10 years, can qualify!
Capital Allowances provide a deduction for tax purposes in lieu of the depreciation charged in the accounts on Capital Expenditure. They are of direct relevance to every legal entity, operating in the UK with the exception of those that are tax exempt.
Capital Allowances tax relief has been around, in one form or another, since 1878. These are widely used by the commercial sector and are also available to individuals who own qualifying properties. Capital Allowances cover a number of tax relief strategies including Plant & Machinery Allowances Relief.
Plant & Machinery Allowances Relief
Plant and machinery for HMO’s includes:-
This list is by no means exhaustive but provides a guide to the plant & machinery most commonly found in buildings.
In addition, expenditure incurred on certain other assets including fire safety, thermal insulation and building alterations incidental to the installation of plant and machinery may also be eligible.
The rate of relief varies from 100% in the year of purchase (AIA / FYA), to 10% (WDA).
Other allowances are available, but these are largely restricted for companies and are not largely applicable to HMO owners.
Who Can Claim?
What Can Be Claimed?
How much can be saved?
Typically, between 15% and 25% of the purchase price of a HMO property will qualify for Plant & Machinery Capital Allowances Tax relief.
Purchase Price Capital Allowances available (tax free income)
£100,000 £20,000
£120,000 £24,000
£140,000 £28,000
£160,000 £32,000
£180,000 £36,000
£200,000 £40,000
£250,000 £50,000
£300,000 £60,000
£350,000 £70,000
n.b. – these allowances are averages, based on previous work undertaken, your property may attract more, or less capital allowances. Your claim is based on purchase price, qualifying expenditure, and the total communal areas of the property. This is a guide only.
For further information or to arrange a survey on YOUR HMO properties, you can contact Arthur below.
I'll hand it other to Arthur to tell you more:
If you own a HMO, you may be able to take advantage of Capital Allowances Tax relief, to mitigate your previous and current year’s tax liability.
Whether you are an armchair property investor, entrepreneur, or own just 1 HMO property, you could mitigate your current liability, and also get a refund from HMRC for previously paid tax!
Capital Allowances – what are they?
Plant & Machinery Capital Allowances, relate to the tax relief associated with certain qualifying items within the communal areas of HMO properties.
Having recently come into the limelight do to a technical clarification by HMRC, these allowances are an extremely valuable tax relief. You can reclaim tax paid up to 5 years previously.
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, depending on how long you have owned the property.
There is no time restriction on claiming – a property you have owned for 10 years, can qualify!
Capital Allowances provide a deduction for tax purposes in lieu of the depreciation charged in the accounts on Capital Expenditure. They are of direct relevance to every legal entity, operating in the UK with the exception of those that are tax exempt.
Capital Allowances tax relief has been around, in one form or another, since 1878. These are widely used by the commercial sector and are also available to individuals who own qualifying properties. Capital Allowances cover a number of tax relief strategies including Plant & Machinery Allowances Relief.
Plant & Machinery Allowances Relief
Plant and machinery for HMO’s includes:-
- heating and air-conditioning
- lifts
- wiring to fixed plant
- switchgear
- emergency lighting
- fire alarm installations
- sanitary fittings
- hot water installation
- carpets and removable floor coverings
- fittings and furniture
- demountable partitioning used for trade flexibility
- fire fighting equipment
- mechanical door closers
- security equipment
- telecommunications installations
- trade and information signs
- vehicle control equipment
- window cleaning equipment and assets used to create ‘atmosphere’ or ‘ambiance’ in a hotel, restaurant or public house.
This list is by no means exhaustive but provides a guide to the plant & machinery most commonly found in buildings.
In addition, expenditure incurred on certain other assets including fire safety, thermal insulation and building alterations incidental to the installation of plant and machinery may also be eligible.
The rate of relief varies from 100% in the year of purchase (AIA / FYA), to 10% (WDA).
Other allowances are available, but these are largely restricted for companies and are not largely applicable to HMO owners.
Who Can Claim?
- Must be a UK Tax Payer (Either Income tax, or Corporation tax)
- Must incur the capital expenditure.
- Must be ‘qualifying’ items of expenditure or ‘qualifying’ buildings.
What Can Be Claimed?
- Development of property
- Fit out works
- Refurbishment or alteration works to existing property
- Purchase of property
How much can be saved?
Typically, between 15% and 25% of the purchase price of a HMO property will qualify for Plant & Machinery Capital Allowances Tax relief.
Purchase Price Capital Allowances available (tax free income)
£100,000 £20,000
£120,000 £24,000
£140,000 £28,000
£160,000 £32,000
£180,000 £36,000
£200,000 £40,000
£250,000 £50,000
£300,000 £60,000
£350,000 £70,000
n.b. – these allowances are averages, based on previous work undertaken, your property may attract more, or less capital allowances. Your claim is based on purchase price, qualifying expenditure, and the total communal areas of the property. This is a guide only.
For further information or to arrange a survey on YOUR HMO properties, you can contact Arthur below.
Matthew, thanks.
OK, you talked about HMOs, but there’s a suggestion in Arthur’s notes that this might apply to other dwellings. True? (And if so, thanks!)
Hi JP, it depends on exactly what it is but if you have something that you think might apply, then fill out your details above so that Arthur can get in contact.
Hi Anthur.
Is this allowance also aplicable to multilet properties. Namely, not licenced HMOs?
Cristina
Good afternoon Cristina,
Yes, this does apply to multi-let properties. Capital Allowances can also be claimed for commercial premises.
Thanks
Arthur
Can you refer to people who have sucessfully claimed these allowances. Matthew have you made sucessful use of the allowance for HMO’s ?
Hi Paul,
I have seen evidence of two that have been completed and where people have claimed against the report. I am going through the process at the moment so I am happy to report back once my allowance and claim goes through.
Matthew
Does the property need to have a commercial mortgage on it in order to qualify for Capital Allowances?
No it can be any type of mortgage – this is about the property – not the mortgage. I just had my first report through for my first HMO tax rebate allowance and have now sent it to my accountant to deal with…!
Would this apply to a multi-let primary residence where some income is off set against rent a room allowance?
Would this apply to a multi-let primary residence where some income is off set against rent a room allowance?
Hmm, not sure on this Bruce and Paul. You are best to speak with Arthur directly.
Does the property need to have a commercial mortgage on it in order to qualify for Capital Allowances?
Hi Lilly,
No it isn’t the mortgage that HMRC look at, it is what the building is used for.
Matthew
Hi Matthew
Is it possible to claim ‘rent a room’ allowance AND claim expenses for the other rooms that are let in my licensed HMO whilst I am living there.
ie, electricity bill £500. 1 ‘rent-a-room’ let, 3 HMO room lets, 1 owner occupying one room, all sharing kitchen and bathroom facilities. Apportion one-fifth of electricity bill to ‘rent-a-room’, one-fifth to owner, claim tax relief on three-fifths, ie £300?
Is this possible?
I would like to arrange a survey on my HMO properties. What’s the first step please?
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