Capital allowances on property give valuable tax relief to landlords by allowing them to deduct the cost of qualifying expenditure when calculating their taxable profits. This deduction can significantly reduce the amount of income subject to income tax or corporation tax.
When correctly claimed, capital allowances are legitimate and fully approved by HMRC. Landlords who fail to claim them will miss out on significant tax relief, now and in the future.
However, claiming incorrectly can result in penalties and interest liabilities, and can leave taxpayers open to risk for up to 20 years as HMRC can make “discovery” assessments for that length of time.
An incorrect claim, or even just a failure to claim what is due, is a common cause of delays and complications when it comes to selling the property.
Understanding qualifying assets
Landlords need to consider capital allowances when buying, selling, extending or converting a commercial property.
It is therefore key to understand the difference between commercial and residential property (as these terms are used for capital allowances purposes).
Commercial properties (such as care homes, hotels or office blocks) receive the most generous allowances. Student accommodation raises particular technical issues, and residential buy-to-let landlords face the greatest restrictions, though some allowances may still be available.
The most important step is to understand what assets qualify for allowances. This is where Six Forward comes in, with expertise in capital allowances legislation and a wealth of experience dealing with complex claims.
The most valuable capital allowances are given for plant and machinery, a term that covers both fixtures and moveable items. These categories are discussed below, and the difference affects how the allowances are claimed and the rate at which tax relief can be claimed.
Fixtures
These are items fixed to the property that usually stay if the building is sold, for example, electrical, heating, plumbing and water systems, air conditioning, lifts, fire alarms and security systems. These typically qualify for capital allowances, even though they are part of the building.
Integral features are a particular type of fixture. They can still qualify for annual investment allowances (AIAs), so often receive full tax relief in year one. If writing-down allowances are claimed, however, they will only be written down at 6% per year, in what is known as the “special rate” pool.
Other Plant & Machinery
Plant and machinery allowances are also given for moveable items, including computers and other items.
In the context of let property, this means that allowances may be available for such items as fridges, washing machines, ovens and furniture. This is, however, subject to important restrictions for residential property.
Once more, these items will normally qualify for annual investment allowances (AIAs), and so receive full tax relief in year one. If writing-down allowances are claimed, however, they will only be written down at the main rate. In recent years, this has been 18% but the rate reduces to 14% from April 2026 (with transitional rules applying for periods spanning the date of change).
Cars are also plant and machinery, but important restrictions apply to determine the rate at which allowances can be claimed.
The importance of claiming correctly
Landlords often fail to claim allowances when buying, refurbishing or converting a property. Particular issues arise when acquiring property where allowances were not previously claimed or pooled.
In most cases, if allowances are not correctly identified and claimed when the landlord buys, they can be lost forever. The failure to claim can also have a knock-on effect on the next owner, sometimes blocking claims in the future or reducing the value of a property.
As mentioned above, incorrect claims can trigger problems in which no landlord wants to get tangled up. Claiming capital allowances incorrectly can trigger an HMRC inquiry, often leading to penalties, interest, and potential scrutiny in the future.
While the complexity can be discouraging, seeking specialist professional advice will guarantee that each step has been correctly followed. You can confidently claim tax relief on rental property, without the negative consequences of misidentifying assets or making other errors.
Six Forward brings certainty
If you’re struggling with capital allowances on rental property, you need specialist advice from an advisor you can trust. Six Forward have expert knowledge on capital allowances on rental property and will bring certainty to your rental property capital allowances claims. Our expert team have dedicated their careers to understanding capital allowances legislation, so that you don’t have to.
Contact our team so we can strengthen your capital allowances expertise and reinforce your client relationships.
What types of property are eligible for Capital Allowances?
Capital Allowances are generally available for most non-residential commercial properties, such as offices, hotels, retail units and industrial buildings. Residential buy-to-let properties are mostly excluded from relief. However, some exceptions exist, for example, for communal areas in apartment blocks, certain types of serviced accommodation, and student housing. Because the rules distinguishing commercial and residential use can be complex, it is important to seek specialist advice to ensure any claim is maximised and fully compliant.
What qualifies as a fixture for Capital Allowances on rental property?
Capital Allowances are available for fixtures, which are items that have been installed in a property and serve a functional or operational purpose rather than merely forming part of the building structure itself. Examples include electrical, heating, plumbing, and water systems, air conditioning and ventilation, lifts, fire alarms and security systems.
When should I consider Capital Allowances during a property transaction?
You should consider Capital Allowances at every stage of a property's lifecycle: whether you are buying, selling, extending, or converting. Engaging a specialist early in the transaction process ensures that qualifying expenditure is correctly identified and documented, preserving valuable tax relief and helping avoid complications for future claims.
What is the risk of not claiming Capital Allowances on rental property?
If qualifying expenditure is not correctly identified at the time of purchase, the opportunity to claim capital allowances may be delayed or permanently lost, and failing to address this can create complications for future claims. Additionally, it may affect subsequent owners’ ability to claim allowances, potentially impacting the property’s value.
Is it possible to make a retrospective claim for Capital Allowances?
Yes. If you discover that you have missed claiming Capital Allowances on a property you still own, it is often possible to make a retrospective claim, provided the expenditure was never previously claimed. Many property owners assume that relief is lost if not claimed in the year of purchase or refurbishment, but this is not always the case. There are statutory time limits, whether the property is owned personally or through a company, so it is important to seek expert guidance to maximise the relief available.
