Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Property Income Manual

Capital allowances: calculation

Treat capital allowances like expenses

Capital allowances are deducted in computing the taxable profits of the rental business, as if they were an expense of the business. They may increase a loss, or turn what would have been a profit into a loss.

Treat balancing charges like receipts

Balancing charges are added in computing the taxable profits of the rental business.

Example

Prisha has rents from several let properties amounting to £24,000 in the year ended 5 April 2016, and allowable expenses of £12,500. Her capital allowances on equipment used in the maintenance of the properties come to £2,800 and there is a £600 balancing charge (adjusted for private use) on the sale of her old van (which was partly used privately). Her profit for 2015-16 is £9,300 as follows:

Item    
Rents   £24,000
Allowable expenses   £12,500
Profit   £11,500
Plus balancing charge £600  
Minus capital allowances £2,800 £2,200
Profit   £9,300