Tax Update: A Round-Up of Recent Tax Issues - Monday, 24 January 2011


1.1. Revenue Deduction for Capital Expenditure on a Dwelling

UK and Overseas Property Businesses (Including Houses in Multiple Occupation)

For dwelling houses that are part of a UK or overseas property business, but are not furnished holiday lettings the possibilities for claiming a revenue deduction for capital expenditure on furnishings, fittings and fixtures are set out in the table below:

ESCB47 for furnished lettings of a dwelling house - Wear & tear

Renewals allowance (ESC B47)

CAA2001 P&M Allowances

Furniture & fittings

10% of net rental Income

Or Actual cost of renewing

Not permitted (s35)


Can claim cost of renewing fixtures in addition to 10% wear & tear for furnishings

Not permitted (s35), but Flat Conversion Allowances may be due

ESC B47 only applies in practice where capital allowances are not due (for example as set out in CAA2001 s35).

For university accommodation and houses in multiple occupation (HMOs) – where the student flat or room in a house could be regarded as a dwelling – there may be the opportunity to claim wear and tear and cost of renewing fixtures, as well as capital allowances in relation to the parts of the property meeting the conditions for qualifying as common parts (lifts, carpets in hallways, entrance areas and common stair cases etc). Common parts of such properties are not regarded as dwelling houses, and therefore capital allowances are available.

There has been some discussion as to the wording in R&C Brief 45/10, which sets out HMRC's interpretation of a dwelling house applying from 22 October 2010, as to whether common areas in HMOs are regarded as part of the dwelling house or not. The relevant text is:

Returning to the example of student accommodation at paragraph four above, HMRC have concluded that the better view is that each flat in multiple occupation comprises a dwelling-house, given that the individual study bedrooms alone would not afford the occupants 'the facilities required for day-to-day private domestic existence'. In other words, the communal kitchen and lounge are also part of the dwelling-house. The common parts of the building block (such as the common entrance lobby, stairs or lifts) would not, however, comprise a 'dwelling-house'.

This would seem to imply that from 22 October 2010 while communal kitchens and lounges of an HMO would be regarded as part of the dwelling (and thus not attracting capital allowances, but where the wear and tear and/or renewals allowance could be considered), it may still be possible to claim capital allowances on the common entrance lobby, stairs and any lift. Further clarification is expected shortly from HMRC. Please also see Informal of 1 November 2010 for further notes on HMRC's Brief 45/10.

Furnished Holiday Lettings

While the consequent amendments to HMRCs capital allowance manuals (CA11520 and CA23060) arising from HMRC's Brief 45/10 now specifically state that "A person's second or holiday home or accommodation used for holiday letting is a dwelling house" , it is relevant to note that the restriction not permitting capital allowances on dwelling houses (CAA2001 s35) applies to:

an ordinary...

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