{"id":1490,"date":"2026-06-21T10:11:58","date_gmt":"2026-06-21T10:11:58","guid":{"rendered":"https:\/\/thenextdigi.com\/moneywize\/?p=1490"},"modified":"2026-06-21T10:11:58","modified_gmt":"2026-06-21T10:11:58","slug":"capital-allowances-for-landlords-letting-out-uk-property","status":"publish","type":"post","link":"https:\/\/thenextdigi.com\/moneywize\/capital-allowances-for-landlords-letting-out-uk-property\/","title":{"rendered":"Capital Allowances For Landlords Letting Out UK Property"},"content":{"rendered":"

What are Capital Allowances?<\/h2>\n

In their simplest form, capital allowances are tax relief for loss in the value of assets due to depreciation. \u00a0These assets would usually comprise\u00a0items for use in the business whereby they are subject to \u2018wear and tear\u2019. In a normal trade, or commercial property letting, this equipment would collectively be\u00a0defined as \u2018plant and machinery\u2019 (\u2018plant and fixtures\u2019 specific to property) and accordingly include manufacturing machines, power tools, vehicles, fixtures\u00a0and fittings and suchlike. \u00a0Also, in a standard trade, or commercial property letting, capital allowances can be claimed for the cost of improving an asset, or taking it to higher spec.<\/p>\n

One common failing and associated potential loss of allowance concerning commercial property letting is that the buildings normally include ‘plant’ such as heating, ventilation and cooling equipment, specialist and emergency lighting, alarm and security systems plus ‘fittings’, including toilets, sinks, general sanitary ware, etc. Often these items are not separated in the accounts from the overall expense of the building itself and have accordingly not had capital allowances claimed.\u00a0 Being that the rule is that capital allowances can be claimed at the full purchase value, at any point, providing that they are still in the ‘ownership’ of the Landlord, applicable recovery can potentially be made going back many years.\u00a0 Expert advice is therefore required in recovering, or initiating, the applicable capital allowance.<\/p>\n

In a residential property letting business, other than \u2018FHL’ (see below), the treatment is different, whereby relief on capital items is limited to certain\u00a0categories and principally classified as \u2018Domestic Items Allowance\u2019. This allowance came into being in the 2016\/17 tax year, replacing \u2018Wear and\u00a0Tear Allowance\u2019 which represented a flat 10% of gross rent allowance for furnished lettings in order to cater for depreciation. \u00a0Domestic Items Allowance is, however, available for\u00a0both\u00a0furnished and unfurnished lettings. \u00a0Improvements to the principal asset, being the building itself and fixtures and fittings are not relievable by capital allowances concerning residential lettings (other than FHL) and, where applicable, this would normally be retained expenditure in order to offset a potential capital gains calculation on disposal of the property, although there are some specified improvements that can be treated as a repair expense, such as entire replacement of windows with double glazed units.<\/p>\n

\u200d<\/p>\n

How are Capital Allowances Claimed?<\/h2>\n

In standard trades and commercial letting the way capital allowances are claimed depends on the accounting method used. \u00a0When the \u2018Accruals\u2019 method is used, capital\u00a0allowances are detailed and claimed separately from expenses using, principally, either of two forms of claim, one being AIA (Annual Investment\u00a0Allowance), whereby investments (other than in cars) made in the tax year can be claimed in \u2018one hit\u2019 up to the point of maximum efficiency, with the\u00a0balance (which can be part utilised and\/or carried forward) being subject to an 18% writing down allowance which reduces the claim over ensuing\u00a0years until the asset is \u2018written off’. \u00a0The option to use the 18% writing down allowance, rather than AIA, is available on all assets if more efficient\u00a0and, indeed, it must be used where the asset hasn\u2019t been purchased in the applicable tax year. Also, cars have to use the 18% writing down\u00a0allowance, although vans and speciality cars, such as cars fitted with dual controls, can utilise AIA.\u00a0 There are other forms of capital allowance\u00a0available, however, are not generally relevant for the purposes of this article.<\/p>\n

The \u2018Cash Basis\u2019 method of accounting enables assets used in the course of the business, other than cars, to be claimed along with expenses and, being that this is the default method\u00a0for the vast majority of Landlords, is the principal route for the claim, although the distinction for residential lettings is that most capital items\u00a0have their own box on the property pages of the tax return into which they are categorised as \u2018Domestic Items Allowance\u2019. \u00a0Other asset claims for\u00a0\u2018plant and machinery\u2019 can be made via general expenses, as per commercial lettings and such items might include a lawnmower, or other garden machinery to\u00a0be used exclusively for a residential property letting business (usually applicable to multiple properties). \u00a0Capital allowances can also be claimed for cars used\u00a0in the property business at the 18% writing down rate, which is detailed on the tax return external to expenses, however, Landlords would normally\u00a0take advantage of the simplified method of claiming vehicle expenses at fixed rate mileage and this includes an allowance for vehicle depreciation\u00a0(see section below).<\/p>\n

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Domestic Items Allowance<\/h3>\n

This is the principal route in claiming allowances for the bulk of assets purchased in the course of a residential property letting business. \u00a0It is important to note\u00a0that the allowance is only available on replacement of items and therefore cannot be utilised for the initial investment in new items when setting up\u00a0the letting, or providing an additional facility for an existing tenant. \u00a0Additionally, the replacement has to be \u2018like for like\u2019 and not an upgrade in facility\u00a0for the full amount of purchase to be claimed. \u00a0However, just because the item is new, it is not generally considered an upgrade, it is more to do with\u00a0the facility provided by the replacement i.e. replacement with \u2018luxury\u2019 spec. when the original had been \u2018standard\u2019. \u00a0Where the new item is not\u00a0substantially of the same standard\/quality as the old item, the allowable amount is equal to the lesser of:<\/p>\n