HM Revenue & Customs (HMRC) revised its guidance as to the meaning of “dwelling house” for the purposes of the Capital Allowances Act in 2010.
This primarily affected accommodation where multiple users share facilities such as blocks of flats and student halls of residence.
Expenditure incurred on plant and machinery for use in a dwelling house, does not qualify for capital allowances if the qualifying activity consists of:
- An ordinary property business
- An overseas property business or
- Special leasing of plant and machinery
Why? S35 CAA 2001 says so.
HMRC originally took the view that student halls of residence were not dwelling houses. However, the term “dwelling house” is ambiguous and following a 2001 case that examined the Housing Act 1988 definition, a hotel room equipped with a shower and without cooking facilities was found to comprise a dwelling house.
As a result of that case HMRC revised its view; it will treat each flat or room in a house that is in multiple occupation as a dwelling-house, but where an individual bedroom does not provide its occupant with the facilities required for day-to-day private domestic existence then shared parts including the communal kitchen and lounge are also to be treated as part of the dwelling-house.
The common parts of the building block (such as the common entrance lobby, stairs or lifts) would not comprise a 'dwelling-house'.
The new view will affect expenditure incurred on or after 22 October 2010.
In relation to capital expenditure incurred on or after 29 December 2008 but before 22 October 2010 HMRC will either accept capital allowances claims in returns made in respect of communal areas on the basis of the view as set out in its previous Brief 66/08 or on the basis of the view as previously set out in its Capital Allowances manuals: CA11520 and CA23060.
In relation to capital expenditure incurred before 29 December 2008 claims made in returns for open years and filed before 22 October 2010 relying on R&C Brief 66/08 will also be accepted.
Editor's TAX TIP. s35 does not prevent you claiming allowances when the qualifying activity is Furnished holiday letting this is treated as a trade.
Further reading: When can I back-claim capital allowances on residential property?
HMRC's CAA01/S531
"There are several references to dwelling house in CAA2001. The term appears in Part 2 (plant and machinery allowances), Part 3 (industrial buildings allowances), Part 3A (business premises renovation allowances), Part 6 (research and development allowances) and Part 10 (assured tenancy allowances).
For Part 10 (ATA) only, ‘dwelling house’ is given the same meaning as in the Rent Act 1977 (CAA01/S531).
There is no definition of ‘dwelling house’ for the other Parts and so it takes its ordinary meaning. A dwelling house is a building, or a part of a building; its distinctive characteristic is its ability to afford to those who use it the facilities required for day-to-day private domestic existence. In most cases there should be little difficulty in deciding whether or not particular premises comprise a dwelling house, but difficult cases may need to be decided on their particular facts. In such cases the question is essentially one of fact. A person's second or holiday home or accommodation used for holiday letting is a dwelling house. A block of flats is not a dwelling house although the individual flats within the block may be. A hospital, a prison, nursing home or hotel (run as a trade and offering services, whether by the owner-occupier or by a tenant) are not dwelling houses.
A University hall of residence may be one of the most difficult types of premises to decide because there are so many variations in student accommodation. On the one hand, an educational establishment that provides on-site accommodation purely for its own students, where, for example, the kitchen and dining facilities are physically separate from the study-bedrooms and may not always be accessible to the students, is probably an institution, rather than a ‘dwelling-house’. But on the other hand, cluster flats or houses in multiple occupation, that provide the facilities necessary for day-to-day private domestic existence (such as bedrooms with en-suite facilities and a shared or communal kitchen/diner and sitting room) are dwelling-houses. Such a flat or house would be a dwelling-house if occupied by a family, a group of friends or key workers, so the fact that it may be occupied by students is, in a sense, incidental.
The common parts (for example the stairs and lifts) of a building which contains two or more dwelling houses will not, however, comprise a dwelling-house."
Source: Revenue & Customs Brief 45/10
