Residential property is often dismissed when it comes to capital allowances. In practice, this is one of the more nuanced areas of the legislation, where the availability of relief depends on how the rules are applied to the specific facts of each asset.
The dwelling house restriction
Under Section 35 of the Capital Allowances Act 2001, relief is prohibited on plant and machinery that is “for use in a dwelling house”. HMRC guidance at CA11520, together with established case law such as Gravesham BC v Secretary of State for the Environment, which is commonly referenced when considering the ordinary meaning of a dwelling, helps refine this definition.
A dwelling is generally understood as a unit capable of providing the facilities required for day-to-day private domestic existence. In simple terms, somewhere to sleep, cook and use sanitary facilities.
At TCM Capital, our team of chartered accountants and surveyors apply this legislation in detail, ensuring the dwelling house restriction is correctly interpreted and applied to each asset.
Common parts and communal plant
Whilst individual flats will usually meet the dwelling house definition, the common parts of a residential building typically do not. Where expenditure relates to these non-dwelling areas, capital allowances may be available on qualifying plant and machinery.
Common examples can include:
Passenger lifts and associated motor room equipment
Communal fire alarm systems, smoke ventilation and CCTV
Centralised heating and cooling plant serving communal areas
Lighting to foyers, corridors and stairwells
Electrical and water infrastructure serving the building as a whole rather than individual flats
In newer residential developments, particularly higher-end schemes, additional non-residential amenities such as gyms, cinema rooms, lounges and concierge areas can further extend the scope for qualifying expenditure, subject to a detailed review of use and function.
Ownership structure and apportionment
The ownership structure is also relevant. Opportunities may exist where the freehold is retained and flats are let on short-term arrangements, or where flats have been sold but a continuing freehold interest and ground rent income is retained. This is most commonly seen on developments acquired prior to June 2022, before the introduction of restrictions on new ground rents for long residential leases in England and Wales.
A critical point is the requirement for a just and reasonable apportionment. Where plant, such as a central boiler or electrical system, serves both private dwellings and communal areas, only the portion attributable to the non-dwelling use is eligible. Without specialist analysis to support this apportionment, qualifying expenditure is often overlooked.
Residential adjacent asset classes
Residential buildings are not automatically excluded from capital allowances. However, claims require careful technical analysis and a clear understanding of where the dwelling house boundary genuinely sits.
Certain asset classes are also commonly misunderstood due to the presence of self-contained accommodation. Hotels and care homes, for example, can appear residential in nature; however, the provision of services such as room servicing, linen changes, catering, and medical or personal care means they are generally viewed as commercial operations rather than dwelling houses for capital allowances purposes.
Purpose built student accommodation and assisted living schemes can also fall outside the dwelling house definition. In these cases, it must be demonstrated that there is a level of care, supervision, facilities or service provision that goes beyond that of a normal domestic dwelling. This assessment is highly fact specific and must be considered on a case-by-case basis.
Final thoughts
Residential property is not automatically excluded from capital allowances, but the analysis is highly fact specific. If any of the above is relevant to your portfolio and you would like to discuss it further, please do get in touch.
