By Mark Anthistle, Senior Capital Allowances Analyst at Catax.
This month’s Capital Allowances Tax Talk will focus on the definition of a ‘dwelling house’ and how it relates to the ability to claim Capital Allowances on predominantly residential buildings.
Commercial or Residential? – Black or White Cases
Capital Allowances are available on any qualifying plant that is in commercial use. Generally, determining whether the plant is used commercially or not is a reasonably straight forward task as the building in question would typically provide the answer. For example, it’s a pretty safe assumption to state that an industrial unit, warehouse or office is used for a commercial purpose.
At the opposite end of the scale, we have a house, which is occupied and used primarily as a person’s or family’s place of residence. It is clear there would be no Capital Allowances available at this type of property as the plant installed is not used commercially.
Commercial or Residential? – Grey Areas
The grey areas are where we have a property which, on the face of it, could be thought of as either commercial and/or residential. For example, a hotel could be thought of as residential, given that the occupants or guests use them as an alternative to their residential premises. However, a hotel is deemed to be in commercial use given that the guests occupy the property on a short-term basis (30 days or less) and are provided with services such as housekeeping, dining, security, and leisure, etc.
Similarly, care or nursing homes could be thought to be residential (especially as many have the word ‘residential’ in their name) given that the tenants occupying the property do so as their primary place of residence. However, these types of property are also deemed to be operating commercially and offer their tenants the services found in a hotel as well as on-call care and medical treatment.
This ruling also extends to properties occupied by adults with learning difficulties or those recovering from alcohol and drug abuse.
The most common area of debate comes when we are asked to consider properties such as an apartment building, a house of multiple occupancy (HMO) or student accommodation.
Dwelling House Definition
Historically, HMRC took the view that student halls of residence were not dwelling houses; however, following a review in 2001, it revised its view in that:
‘Cluster flats or houses in multiple occupation, that provide the facilities necessary for day-to-day private domestic existence are dwelling houses.’
This can be extended to cover shared parts where an individual bedroom does not provide its occupant with the facilities required for day-to-day private domestic existence (i.e. bathroom, kitchen and lounge). These shared parts are also to be treated as part of the dwelling house.
HMRC’s Capital Allowances Manual at CA11520 also indicates that a ‘dwelling house’ is not defined for the Act, 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.’
Is there still a claim to be had?
Based upon the above definition, the common parts of such a building would not comprise a ‘dwelling house.’ The common parts (or communal or landlord areas) would include stairwells, lobbies, lifts, corridors and any areas or rooms accessible to the entire building such as laundries, gymnasiums, cinemas, or libraries.
These parts are all deemed to be in commercial use and, therefore, Capital Allowances are available on all qualifying plant found in these areas. This includes (but is not limited to) passenger lifts, lighting, carpets, mailboxes, fire alarms, CCTV, door access systems, smoke ventilation, and heating installations (a heating system may cover the entire building, so the qualifying element would have to be apportioned on a reasonable basis such as floor area).
So, although any Capital Allowances are restricted to the plant found in the common parts, a property with a sizeable purchase price can still generate a viable claim leading to a significant level of tax relief.
A property type such as those detailed above could easily be overlooked when considering a claim for Capital Allowances, so it is well worth seeking further advice from the specialists here at Catax.