11:11 AM, 10th May 2013, About 12 years ago 16
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Part 2 of 2 written by Bill Loryman
The first reactions from Property Investors hearing about Capital Allowances are that they sound too good to be true and that,”surely my Accountant has identified them for me?”
Well, firstly they have been around since 1878 and are not a tax loop-hole or tax avoidance scheme. If you own a commercial business property, including an HMO or Multilet, you are entitled to claim Capital Allowances for them.
Secondly, the process of valuing the likely tax savings has to be completed by Capital Allowance experts who need to send Surveyors into the property to assess the “plant & machinery” – fixtures and fittings – assets etc. that are in the fabric of the building. They then prepare a typically a ten page report, with photographs, plans and a detailed analysis of all the qualifying assets that will satisfy the HMRC guidelines on submitting Capital Allowance claims.
This is a very specialised tax service that many accountants simply outsource in order to help their clients. A specialist will help you submit a claim, or work with your accountants to work out how much tax and money you can save, either as a tax rebate or off-set over future years.
• You need to be a UK tax payer. The investment property can be owned by a Company or a person. Whether the tax band is 20%, 40% or 50%, the higher rate you pay the greater the tax benefit and savings.
• The minimum value of a property really needs to be £150k but total value of portfolio qualifies. If you are buying this year or last you can qualify for AIA (Annual Investment Allowance) of up to £250,000 which can help make the claim successful and give substantial tax savings.
• Your accountant will claim for the furniture and general repairs but Capital Allowance surveyors look into what makes the building work, so the hidden assets unclaimed in the fabric of the building, items such as heating installation, wiring, lighting, fire alarm systems etc. are all valued using Quantity Surveying rules that confirm to the HMRC guidelines on submitting Capital Allowance claims.
Three of our recent examples are shown below:
| Sussex | Hearts | Norfolk | |
| HMO/Multi Let Purchase Price | £280,000 | £155,000 | £205,000 |
| Capital Allowance Identified | £28,000 | £12.500 | £9,200 |
| Net Tax Saved | £14,500 | £3,500(refund) | £7,680(refund) |
Clearly everyone’s tax situation is different and you will need to discuss preliminary details in order to get an illustration of the likely tax savings such as property address, type of business – Multi-let, HMO, student let, holiday let etc, date of purchase and the price paid plus the value of any improvement work you have carried out.
When you (and your accountant) decide to go ahead an engagement letter to be signed which gives the authority to contact the Land Registry to ensure no previous claims have been made. The property will then be surveyed for qualifying assets and a full report prepared for submission to HMRC.
The whole process typically takes about 10 – 12 weeks and should always involve your accountants. Fees for this service are usually generated out of a small percentage of the claim value on a ‘no claim – no fee’ arrangement.
Bill Loryman is the Managing director of HMO Tax Limited and has 20 years experience in the property world involving franchising, licensing, acquisitions and property development.
If you would like an illustration form of your likely tax savings on your investment property please complete your details below.
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Phil Ashford
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Sign Up8:22 AM, 26th June 2013, About 12 years ago
Hello Bill.
Firstly, many thanks for the detailed reply.
The article is clearly written as a bit of an advertisement, as it reads that HMOs can claim these allowances, but I wanted to clarify that not all can, which you now loosely point out but have not yet discussed my initial and most pertinent example.
As a dwelling house is a question of fact as you point out, then can we agree that the structure of the ASTs must be taken into account. Many student HMO landlords let out their HMOs on Joint and Several ASTs. The whole HMO is let as a single dwelling, non essential and essential parts for the purposes of your line of argument on essential areas for providing the affordability for domestic living.
Thus, a huge chunk of the HMO market is specifically excluded?
Secondly, I am not aware of many HMOs where the owner leaves a second reception room, on which you argue CAs can be claimed. Generally an owner will take a commercial view of such a room and let it out as another bedroom, unless restricted by planning permissions where a C4 HMO may need planning to become a Sui Generis HMO.
I would be intrigued to hear how many HMOs you think can still claim. I would argue that 80% of HMOs could be summarised by just a few examples, maybe to help the readers, you could provide specific examples where this planning fits. That way, the reader can identify if their HMO fits the CA hole that you believe to be open.
Phil Ashford
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Sign Up13:27 PM, 26th June 2013, About 12 years ago
Having been even more intrigued by this topic, I have done some more reading. Such research seems to fall on my side of the cautionary line. I will afford future readers the luxury of not having to search for these other opinions and link them here.
I quite like the point that HMRC work on the basis that they 'process now, check later'. I do not take individual Inspectors agreement as any kind of precedent, and I would be surprised if they hadn't caveated their agreement as such in each individual case.
http://www.cap-allow.com/articles/capital-allowances-and-residential-property
"The Capital Allowances Partnership Ltd’s view, and the consensus among other long-standing and experienced capital allowances specialists, is that HMRC’s stance is correct and in line with the intention of Parliament expressed through the capital allowances legislation.
Furthermore, it is a well established principle that HMRC interpretations and concessions do not have the force of law. Advisers who advocate claiming capital allowances for HMOs etc are doing so on the basis of a questionable and taxpayer-friendly interpretation of an HMRC interpretation. It relies on the argument that the Gravesham definition is somehow inapt, or that certain communal areas of the property (corridors, stairs, halls and landings etc) do not in themselves provide any “facilities required for day-to day private domestic existence” (such as cooking or washing facilities). Claiming capital allowances on those grounds is asking for trouble and no one should be surprised if it is unsuccessful.
Indeed, we consider that a taxpayer would have little prospect of success in persuading a tribunal or court that CAA 2001 permitted capital allowances to be claimed in most HMOs."
http://www.capitusgroup.co.uk/user/54_The%20Great%20Dwelling%20House%20Debate.pdf
The Chartered Institute of Taxation doesn't seem to think Brief 45/10 is definitive on the points on which your planing relies:
http://www.tax.org.uk/OneStopCMS/Core/CrawlerResourceServer.aspx?resource=cf8205d42ef14a8fb49e77f6535886ce&mode=link&guid=ae08b25adb764697bc24b3983122dc38
http://www.dunhamsconsulting.co.uk/perch/resources/1288272791dwellinghousedefinitions.pdf
http://m.accountingweb.co.uk/topic/tax/capital-allowances-buy-let-surely-not/460647
I will leave it there for now.
Daniel Fallows
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Sign Up16:29 PM, 26th June 2013, About 12 years ago
How would a care home (old people residential home) look into this?
Ian Ringrose
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Sign Up14:54 PM, 10th July 2013, About 12 years ago
To sum this up am, I right to say that you can only claim capital allowance on the HMO, if it contains separate units that should be paying council tax in their own right?
So by making the case for capital allowance, you are asking to be charged a lot more council tax…..
John Plumridge
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Sign Up1:50 AM, 26th August 2013, About 11 years ago
Hi Bill
On the Norfolk property could you explain how the capital allowances identified produced the level of tax savings stated. Even the highest rate tax payer would not appear to be able to achieve this level of tax saving so I guess one of the figures is incorrect or am I missing something?
Regards
John
Tim Jones
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Sign Up18:39 PM, 10th November 2015, About 9 years ago
HI - ive recenty been contacted by Bill as i have a HMO - i see this thread from a few years ago , but are there any comments of recomendations yet , im very tempted as it sounds too good to be true, but i would like to hear a sucess story
Thanks Tim