Dwelling on capital allowances: claiming on residential property
Hora Tevfik v HMRC was a recent case about capital allowances for Houses in Multiple Occupation (HMOs) and a timely reminder that while these tax allowances aren’t normally available for residential property, they are sometimes.
Mr Tevfik owned three HMOs and claimed capital allowances on various bits of plant and machinery in the houses. The legislation provides that capital allowances can’t be claimed in relation to dwelling houses, so the question was whether, or the extent to which, the HMOs were dwelling houses.
The First-tier Tribunal (FTT) judge agreed with HMRC’s view (stated in HMRC Brief 45/10) that the term “dwelling house” takes its everyday meaning i.e. a place which affords the facilities required for day to day private domestic existence. An individual bedroom would not afford such facilities. The dwelling would be the bedrooms together with the communal kitchen and shared lounge.
The judge went on to say that “The ‘common parts’ of the building such as the common entrance lobby, corridors, stairs or lifts and those parts of the building which do not provide any living facilities would not, however, comprise a dwelling house. Neither [would] installations to the building such as mains, gas or electrical services, nor security and communication systems.”
For various reasons Mr Tevfik didn’t actually get his allowances. It probably didn’t help that he didn’t turn up for the hearing, although that in itself shouldn’t have been conclusive! More importantly he had made no identification of the common areas (which could qualify for allowances) as opposed to the communal areas (which did not) and presumably it was unclear which plant and machinery related to which parts.
Even so, it does show the FTT’s acceptance of the principle that allowances are available for the parts of a residential building that aren’t themselves part of the dwelling. The same logic can apply in a block of flats, where plant and machinery in common parts can qualify for allowances. But you will have to identify the common parts of the building and which plant and machinery sits in those parts.
For more information about capital allowances and other property tax reliefs, please get in touch with your usual BKL contact or use our enquiry form.