White Knight Associates recently met up with a commercial accountant who told us about this amazing new tax relief scheme for anybody who owns a HMO.
WK Associates found If you own a HMO, you may be able to take advantage of Capital Allowances Tax relief, to mitigate your previous and current year’s tax liability.
Whether you are an armchair property investor, entrepreneur, or own just 1 HMO property, you could mitigate your current liability, and also get a refund from HMRC for previously paid tax!
White Knight Associates explains what Capital Allowances are.
Plant & Machinery Capital Allowances, relate to the tax relief associated with certain qualifying items within the communal areas of HMO properties.
Having recently come into the limelight do to a technical clarification by HMRC, these allowances are an extremely valuable tax relief. You can reclaim tax paid up to 5 years previously.
Once these items have been identified, valued and documented, you can reclaim previously paid Income tax, reduce your current year income tax liability, or roll forward the allowances until such time when they are required, depending on how long you have owned the property.
There is no time restriction on claiming – a property you have owned for 10 years, can qualify!
Capital Allowances provide a deduction for tax purposes in lieu of the depreciation charged in the accounts on Capital Expenditure. They are of direct relevance to every legal entity, operating in the UK with the exception of those that are tax exempt.
Capital Allowances tax relief has been around, in one form or another, since 1878. These are widely used by the commercial sector and are also available to individuals who own qualifying properties. Capital Allowances cover a number of tax relief strategies including Plant & Machinery Allowances Relief.
Plant & Machinery Allowances Relief
Plant and machinery for HMO’s includes:-
heating and air-conditioning
lifts
wiring to fixed plant
switchgear
emergency lighting
fire alarm installations
sanitary fittings
hot water installation
carpets and removable floor coverings
fittings and furniture
demountable partitioning used for trade flexibility
fire fighting equipment
mechanical door closers
security equipment
telecommunications installations
trade and information signs
vehicle control equipment
window cleaning equipment and assets used to create ‘atmosphere’ or ‘ambiance’ in a hotel, restaurant or public house.
This list is by no means exhaustive but provides a guide to the plant & machinery most commonly found in buildings.
In addition, expenditure incurred on certain other assets including fire safety, thermal insulation and building alterations incidental to the installation of plant and machinery may also be eligible.
The rate of relief varies from 100% in the year of purchase (AIA / FYA), to 10% (WDA).
Other allowances are available, but these are largely restricted for companies and are not largely applicable to HMO owners.
Who Can Claim?
Must be a UK Tax Payer (Either Income tax, or Corporation tax)
Must incur the capital expenditure.
Must be ‘qualifying’ items of expenditure or ‘qualifying’ buildings.
WK Associates explains what Can Be Claimed?
Development of property
Fit out works
Refurbishment or alteration works to existing property
Purchase of property
WKA tells you how much can be saved?
Typically, between 15% and 25% of the purchase price of a HMO property will qualify for Plant & Machinery Capital Allowances Tax relief.
Purchase Price Capital Allowances available (tax free income)
£100,000 £20,000
£120,000 £24,000
£140,000 £28,000
£160,000 £32,000
£180,000 £36,000
£200,000 £40,000
£250,000 £50,000
£300,000 £60,000
£350,000 £70,000
n.b. – these allowances are averages, based on previous work undertaken, your property may attract more, or less capital allowances. Your claim is based on purchase price, qualifying expenditure, and the total communal areas of the property. This is a guide only.
For further information or to arrange a survey on YOUR HMO properties, you can contact Barry Williams below.
02033847230
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