HMRC internal manual

Property Income Manual

PIM3010 - Capital allowances

This manual provides an introduction to aspects of the capital allowances legislation which are relevant to taxpayers with a rental business. Detailed guidance is in the Capital Allowances Manual.

Allowances for capital expenditure

A rental business cannot deduct the cost of capital expenditure when computing its profit or loss, including:

  • the cost of buying, altering, building, installing or improving fixed assets used in the rental business, or
  • the depreciation of any capital asset (land, leases and other interests in land, buildings, plant, machinery, etc), or
  • any loss which arises on the sale of any capital asset.

More information about what is capital expenditure is in PIM2030.

A rental business may be able to claim capital allowances, including the structures and buildings allowance – see below.

There is a special relief available (excluding furnished holiday lettings) for the replacement of domestic items – see PIM3210.

There is a special expenses rule relating to the cost of sea walls – see PIM2215.

Capital allowances

Grants towards capital expenditure are normally deducted in arriving at the amount on which capital allowances are due.

Plant and Machinery Allowances

Section 15 of the Capital Allowances Act 2001 (CAA01) treats the following as a qualifying activity:

  • UK property businesses,
  • overseas property businesses, and
  • furnished holiday letting businesses in the UK and the EEA.

That means those businesses may be able to claim capital allowances for qualifying plant and machinery.

The basis period for computing capital allowances is the tax year or accounting period, unless the rental business is carried on by a trading or professional partnership (see PIM1010 and PIM1040).

There are capital allowances for certain expenditure on plant and machinery – see the capital allowances manual from page CA20000 for details. Other than furnished holiday lettings (FHL), capital allowances cannot be claimed on furniture and furnishings.

Furnished holiday lettings (FHL)

FHL are treated as a commercial activity for certain purposes if they meet specific legal tests – see PIM4100 onwards. FHL which meet the tests are also entitled to plant and machinery capital allowances on furniture and furnishings in the let property.

Structures and Buildings Allowance

The Structures and Buildings Allowance may be claimed on certain expenditure on non-residential structures and buildings. Note that structures and buildings allowance is not available for furnished holiday lets since these are residential properties. See the capital allowances manual from page CA90000 for details.