HMRC have recently confirmed their view that common areas in Houses of Multiple Occupation (HMO) are parts of a “dwelling house” and ineligible for capital allowance claims.
Claims relating to Houses in Multiple Occupancy:
We are aware that some taxpayers have submitted claims for plant and machinery allowances in respect of shared parts of houses in multiple occupation (such as hallways, stairs, landings, attics and basements within the houses). They contend that these shared areas are not part of the dwelling-house and that allowances are therefore available. We disagree with this position. If you come across such a claim, please notify the Capital Allowances single point of contact for your area.CA11520 – Capital Allowances Manual – HMRC internal manual – GOV.UK (www.gov.uk)
The capital allowance legislation specifically denies tax relief for plant and machinery installed in a dwelling house. However, plant and machinery installed in the common areas such as hallways, stairs and lift shafts, in blocks of flats would qualify as the flats themselves are the dwellings, not the building as a whole.
Expenditure incurred on the provision of plant or machinery ‘for use in’ a dwelling-house is not qualifying expenditure for an ordinary property business, an overseas property business or the special leasing of plant or machinery.CA23060 – Capital Allowances Manual – HMRC internal manual – GOV.UK (www.gov.uk)
This would seem inconsistent with the HMRC view on HMOs and there may be a test case on the interpretation, particularly as there is no definition of “dwelling house” in the tax legislation. There is also a lack of clarity concerning the status of University Halls of residence where there is often substantial expenditure on plant and machinery in common areas.
Furnished Holiday Lets although a holiday home is a ‘dwelling house’, providing the conditions are met to meet the Furnished Holiday Let (“FHL”) legislation, capital allowances can be claimed CA20025 – Capital Allowances Manual – HMRC internal manual – GOV.UK (www.gov.uk). FHL are deemed as ‘trading’ for tax purposes. The restriction for claiming capital allowances on dwellings (CAA2001 35) is therefore NOT applicable to FHL’s.