HMO and student landlords could be missing a trick on tax relief if they are not keeping an eye on claiming capital allowances for their properties.
Many landlords fail to claim the allowances because residential letting property is outside the rules without realising the communal areas of houses in multiple occupation are not.
HMO landlords can claim capital allowances for shared facilities like heating, fire alarms and carpets in communal areas, kitchens and bathrooms.
Outside spaces, like shared storage or a garage also count.
Despite a judge ruling the personal living space in an HMO should be treated as residential accommodation in 2010, the communal areas remain fair game for claims.
Capital allowances are tax relief on cash a landlord spends on equipment when buying or upgrading a property.
They are like depreciation set at the same rate for all businesses, which reduce the tax liability £1 for £1 against spending.
The tax benefit is capital allowances are calculated at replacement cost, including the cost of fitting and in some cases, carriage, which gives a higher figure to set off against tax than the actual cost of the item.
For example, a boiler may have a cost price of £650 ex VAT, but the capital allowance cost might be £1,150 including fitting.
Specialist surveyors estimate capital allowances and suggest an HMO landlord can reclaim up to 10% of the purchase price of a property as a relief.
So, if a HMO cost £195,000, the capital allowances could add up to £19,500.
The allowance is not paid in cash to a landlord - it’s a reduction on tax due.
The cost of the capital allowances survey also has to be considered against the tax saving - and landlords need a professional survey to make sure the tax relief is assessed at the right amount.
