HMRC has been denying capital allowances on Houses in Multiple Occupation (HMOs), for some time and a recent case held at the First Tier Tribunal, Hora Tevik v HMRC, supports this stance further.
Historically, single rooms or flats within a building have always been treated as dwellings but, up until 2010, HMRC’s guidance was that communal areas of the building were not. Capital allowances claims cannot be made in respect of plant and machinery on dwelling houses which is why the distinction is important.
In summary, both the case and the 2010 Revenue & Customs Brief support that:
Communal areas of the building, such as a kitchen and lounge, form part of the dwelling and hence capital allowances cannot be claimed for expenditure in those areas; but
Common areas of the building, such as the entrance lobby, corridor and stairs/lifts, do not comprise a dwelling and therefore capital expenditure in these areas may be eligible for capital allowances. In addition, claims can also be made in respect of installation of mains, gas or electrical services and security and communications systems.
If you would like further information on whether you may qualify for capital allowances on a HMO, please get in touch with Nick Haines or your usual tax contact.