The answer to this question is not altogether straight forward when looking at capital allowances and the potential for making a claim. HMRC issued a brief on 22nd October 2010 which limited the ability of many investors to make a worth while claim for capital allowances of Houses in Multiple Occupation (HMOs).
Prior to this brief landlords of HMOs were able to claim capital allowances on all the communal parts of a dwelling typically bathrooms, kitchen, lounge and dining areas. This would normally produce capital allowances which were somewhere between 20% to 25% of the original purchase price plus any redevelopment costs.
The new brief released on 22nd October 2010 effectively limited claims to areas such as hallways and landings which in our estimation means a likely capital allowance claim of 5% or less of the original value plus development costs. Although we are aware of companies still making assertions of 10% of the property’s value being able to be claimed as capital allowances we think this is unlikely to be able to be substantiated to the satisfaction of HMRC.
There is however some potentially good news:-
For property purchases between 29th December 2008 and up to 22nd October 2010 a capital allowances claim can still be made on all areas that applied before the release of the October brief. This means that capital allowances may be claimed up to a value of 20% to 25% of the original purchase value plus any significant redevelopment costs.
Probably the best piece of advice we can give to clients is that, if you have a substantial portfolio of HMO’s with a cumulative purchase cost of say £2m or more, then we will be able to establish your potential for making a claim and whether it would be in your best interests to do so. In other words we will calculate the relationship between your likely financial benefit and the cost of making a claim for the capital allowances available.
Just a word of warning. We are aware of some capital allowances claims companies who are still basing their claims on the rules that existed prior to October 22nd 2010. Although the claims may be paid out initially the HMRC will have a subsequent period of at least 12 months in which to launch an investigation of the claim which if prepared incorrectly and signed off by the client’s accountant could result in fines and tax rebates having to be repaid.
John Plumridge BA (Hons) MCIPS
t 02392 696815 / 02392 330707
m 07779 756213
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