Capital Allowances are a
tax break usually applied to commercial properties,
and this has gone on for years, however a clarification of detail in the Finance Bill
2012 caused us to look more closely at this tax advantage from the perspective of the
properties we let out on a multi-let basis, right the way from 2 bedroomed properties
to 6 bed Houses in Multiple Occupancy (HMO’s)and on to larger properties with 7 or more people
occupying them. HMRC announced, fairly unexpectedly, their
Revenue Brief 45/10 “Change of Guidance: meaning of dwelling-house” on 22nd October 2010 and
stated, “A dwelling house is a building, or a part
of a building. Its distinctive characteristic is its ability to afford to those who use
it the facilities required for day-to-day private domestic existence.” It goes on to say: “HMRC have concluded that
the definition based on the presence of the facilities required for day-to-day private
existence is a better everyday description.” As usual HMRC are vague in their clarification
of the tax law, and the elements that are considered to be ‘facilities for day to day
private existence’ is not clear. HMRC mentions kitchens and lounge areas, but does not mention
communal storage and wash facilities. Although we can easily defend the inclusion of storage
and access areas, it would be difficult to argue that bathroom, albeit communal, would
not be necessary for day to day private domestic existence. Plant and Machinery value (Capital Allowance)
will now be at around 7-12% of the property purchase value. Furnished Holiday Lets and Commercial Property
Capital Allowances are unaffected by this statement and so this tax break can still
be applied to them in the same way. We work with assessors and tax accountants
who can assist in this process. The process is not well known even throughout
the accountancy world, and there are several different view-points on whether or not this
allowance is applicable to residential multi-let properties and this is why I have teamed up
with tax specialists in this area, and I am just hoping to bring some tax benefits to
those who have HMO’s and other multi-let properties. We have made several claims ourselves in this
way and I have many other contacts who have used this process too to make huge savings
and claims back from the Government in tax already paid and tax yet to be paid, and I’m
going to fully outline how this works so that you and your investment partners can make
the most of this tax saving or rebate. The process is a bit of a maze, and so I’ll
walk you through it in simple steps. Firstly — Which properties are eligible? A Capital Allowance claim can only be submitted
once on each property for the same fixtures. This means that if a property is refurbished
there may be claim made against the outgoing furnishings as well as the incoming (as long
as this has not been done previously). The property must be let out to 2 or more
unrelated households either under a single, or under multiple AST’s (Assured Short-hold
Tenancy Agreements). The Capital Allowance relates to the Purchase
Price of the property by the claimant, and is not relevant to any increase of price due
to inflation or added value because of works done on the property.
The plant and machinery included in the Capital Allowance claim is in the communal areas of
the house and not in the bedrooms or private dwelling areas and may include the heating
systems, fire systems and other fixtures and fittings used by all parties.
If any of the previous owners of the property made this Capital Allowance claim then this
can not be done again by yourself. In order to work out the amount that can be
claimed a survey will be done on the house by a tax surveyor and each element written
up into the report that is submitted to the HMRC (Her Magesty’s Revenue and Customs).
The amount that is usually claimable is between 7% and 12% of the Purchase Price of the property. Secondly — the Claimant and how the claim
works The claim can only be made by the mortgage
holder for the property. If the property is owned unencumbered then the owner or owners
may claim. If there are more than one mortgage holder
then the claim is split evenly. This applies to both freehold and leasehold
properties. This applies only to UK Tax Payers.
When the claim is submitted and agreed the amount being claimed is taken off the PAYE
or tax already paid or due to be paid by the mortgage holder.
This means that the claimant needs to have earned sufficient for tax to be payable in
that tax year, or paid in a previous but still open tax year.
The amount of the claim is taken off taxable earnings prior to the PAYE being applied.
This reduces the amount to be paid for the claimant.
The claim is also related to the year of purchase of the property, so if it is purchased in
a currently open tax year (this could apply to the previous tax year depending on the
date of claim) then the entire amount can be written off against earnings up to a total
of £250,000 in any one year. If the claim is more than the claimant has
earned in that year then the amount that can be claimed will be capped at the total amount
of earnings. If there is any residual Capital Allowance
to be claimed then this can be pooled for following tax years using the writing down
method. If the claim is made against a property that
was bought in a tax year that is now closed then the allowance is automatically pooled
and the writing down method is used to calculate the allowance that can be used. Thirdly — the Process We provide the following to help you to make
your claim A free client review to confirm qualification
Client fact finding interview A flow-chart to track progress and to assist
in mitigating any potential negligence scenario Accountants guidance notes
Examples of valid replies to section 19 CPSE Pre and Post contract checklist
Example of special conditions for inclusion in commercial contracts
Survey of commercial property / property on instruction
Provision of a fully HMRC compliant report for the claimant
Assistance with report submissions (online and by post)
Follow up process if there are any issues with the claim or you need to appeal an adverse
decision (There have been no adverse decisions to date) If you require a brochure which has further
information on this allowance and the pooling process please submit your details and we’ll
send this out to you straight away. An example: A
property purchased for £200,000 would attract
a capital allowance of 7-12% (assume 10% for simplicity). £200,000 x 10%=£20,000 Take this £20,000 off your salary before
tax is paid. If you are a 22% tax payer this will equate
to £4,400 and if you are a 40% tax payer then the allowance will be £8,000. For a property with a value of £300,000 this
would be £12,000 tax relief at 40% and £6,600 at
22%. You can claim up to £250,000 worth of capital
allowances in any one year as long as you have this much taxable income to off-set it
against, so if you bought multiple houses then this would also apply as long as the
rules above are adhered to. So don’t delay your claim using this process.
If the property is already owned then you need to make this claim by April 2017. If
you are buying and converting to multi-let use then there is no time limit at the moment. If you are buying a property after April 2014
that has already been used as a multi-let property then only the previous owner can
claim and not yourself. That owner can claim up to April 2017. For an initial discussion about your multi-let
and whether or not it is worth claiming your allowance please call 01733 230 968 to discuss
this with one of our team and we’ll go through the process with you so that you can get the
money back from the Government or prevent you from having to pay it in
the first place.