Capital allowances for landlords: what a property company can claim

Short version. Most capital-allowances claims made by buy-to-let companies fail HMRC’s dwelling rule, because equipment inside a home the company lets out gets no plant and machinery allowances at all. Before you look at the fields, check whether your spending passes that rule. Plant in a commercial property, or serving the common parts of a block of flats, does qualify, and this article explains where the line falls, the question we ask to establish it, and which CT600 boxes a property company’s claim lands in.

No allowances inside a let home

HMRC gives no plant and machinery allowances for equipment used inside a dwelling the company lets, however much it cost. A boiler, an oven or a heating system in the let house or flat itself gets nothing. The rule is section 35 of the Capital Allowances Act 2001, and HMRC explains it in its Capital Allowances Manual, CA23060. The rule reaches further than a single house or flat, because the shared areas of an HMO or a house share count as inside the home too, covered in the next section.

There is an honest consolation. A like-for-like replacement, such as swapping a broken boiler for an equivalent new one, is often an allowable letting cost instead, deducted inside the net rent figure you enter as property income. See property income and losses for what goes into that figure.

HMOs, house shares and blocks of flats

The line HMRC draws is between space that is part of a home and space that is not.

• Shared areas of an HMO or house share. Hallways, a shared kitchen and other areas the tenants share count as inside the home, so equipment there gets no allowance.
• Common parts of a block of self-contained flats. A communal boiler, entrance lighting or a lift serves the building rather than any one home, and it qualifies.
• Commercial property. A shop, an office or a warehouse the company lets qualifies, because none of it is a dwelling.

The question we ask, and the answer that blocks

When a property company enters a capital-allowances claim, we ask one question: “What is everything in this claim used for?” There are four answers:

• “All of it: a commercial property the company lets”
• “All of it: shared parts of a block of flats”
• “Inside a home the company lets out”
• “A mixture, or not sure”

The first two answers let the claim through. The dwelling answer blocks the filing, and so does a mixture or not sure, because one figure cannot mix eligible and ineligible items and we will not file a claim whose eligibility was never established.

If you choose the dwelling answer, the panel reads: “Capital allowances are not available for plant used inside an individual let dwelling (CAA 2001 s.35), so this claim cannot be filed. Plant in commercial property or serving the shared parts of a building does qualify.”

If the eligibility has not been established, the panel reads: “This property company has a capital-allowances claim whose eligibility has not been established: plant inside an individual let dwelling does not qualify, and we have not been told what the plant is used for.”

What to enter, and which boxes it lands in

A property company uses the same per-type fields as any other company. Enter the amount for each kind of allowance you claim in Tax adjustments, and see capital allowances: what to enter for the fields themselves.

The difference is the boxes. A company with no trade files the amounts in the CT600’s not-included-in-calculation boxes: box 735 for the Annual Investment Allowance, box 750 for the pool allowances, box 751 for a new zero-emission car and box 736 for the building allowance. That is because the allowances are set against property income rather than a trade. We do that routing for you from your “Property only” answer to “What kind of business did the company carry on?”, so there is no extra step in the wizard.

Companies with both a trade and a letting

If the company has a trade as well as the letting, we ask a second question: “Does the whole claim belong to the trade?” We file every allowance and charge you enter against the trade, so yes is the only answer we can file.

Getting this wrong is not a rounding error. On £30,000 of trading profit, £20,000 of rent, a £15,000 allowance and £30,000 of brought-forward trading losses, filing a property allowance against the trade charges £3,800 where the correct property treatment charges £950, an overcharge of £2,850. The wrong routing shrinks the trading profit the loss relief is capped against, so less of the brought-forward loss can be used.

If part of the claim belongs to the letting, answer no and use an accountant, because splitting the claim needs two amounts we do not collect.

What we do not work out for you, and why

We do not apportion a mixed-use claim, and we do not split a claim between a trade and a letting. Both need a defensible division of the spending into an eligible amount and an ineligible one, and that division rests on facts about the assets that we do not collect. An accountant can make the split, and files the property share of the claim in the property boxes.

Related articles

• Property income and losses, for the net rent figure and where a boiler replacement can be deducted instead.
• Capital allowances: what to enter, for the per-type fields every company uses.
• Why we cannot work out your Corporation Tax, for the dwelling-rule block and how to clear it.

This article is general guidance, not tax advice. Whether a particular item is plant, and whether it serves a dwelling or the shared parts of a building, can involve judgement. If you are unsure, check HMRC’s Capital Allowances Manual or speak to an accountant.