Rental property - capital allowances help needed

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kellyp
kellyp Registered Posts: 44 Regular contributor ⭐
in General accounting discussion
Hi,
Sorry of this seems like a daft question.... one of my clients owns a property which she rents out.
Are capital allowances available for the cost of buying the property? i.e. the mortgage (capital portion)

If so, do properties qualify as AIA?

For some reason I assumed that only the interest was allowable but I am in doubt now...

Any help would be very appreciated.
Thanks in advance.

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  • Diddy Mau
    Diddy Mau Registered Posts: 238 Beyond epic contributor 🧙‍♂️
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    Hi Kellyp

    Yes the purchase of the property is capital allowance.
    the mortgage, will need to be broken down. as the interest is deducted from Rental Income.
    However, AIA is only for Businesses, if they are a sole trader then AIA does not count.

    I'm sure this is correct, a while since I've done BTax.
  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    Capital allowances are NOT available on the cost of buying a rental property.
  • Diddy Mau
    Diddy Mau Registered Posts: 238 Beyond epic contributor 🧙‍♂️
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    deanshepherd wrote: »
    Capital allowances are NOT available on the cost of buying a rental property.
    Sorry Dean, but thanks for clarifying :thumbup1:
  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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    kellyp wrote: »
    Hi,
    Sorry of this seems like a daft question.... one of my clients owns a property which she rents out.
    Are capital allowances available for the cost of buying the property? i.e. the mortgage (capital portion)

    If so, do properties qualify as AIA?

    For some reason I assumed that only the interest was allowable but I am in doubt now...

    Any help would be very appreciated.
    Thanks in advance.

    No, capital allowances aren't available on the property.

    You can elect to use the [URL="Saturday 23 November 2013 - 09:00 to 16:30"]10% wear and tear allowance[/URL] which will help to reduce the rental profits (and therefore reduce tax).

    The cost of the property will come into play when the property is sold (capital gain = sale proceeds from property - cost of buying property).

    If your client still lives in the property and just rents out a room you may be able to use rent a room relief.
  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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    Diddy Mau wrote: »
    Hi Kellyp

    However, AIA is only for Businesses, if they are a sole trader then AIA does not count.

    I'm sure this is correct, a while since I've done BTax.

    Sole traders do run businesses (unincorporated businesses). These types of unincorporated businesses are entitled to claim AIA.
  • Gem7321
    Gem7321 Registered Posts: 1,438 Beyond epic contributor 🧙‍♂️
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    reader wrote: »
    You can elect to use the [URL="Saturday 23 November 2013 - 09:00 to 16:30"]10% wear and tear allowance[/URL] which will help to reduce the rental profits (and therefore reduce tax).

    Only if the property is furnished.
  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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    Gem7321 wrote: »
    Only if the property is furnished.

    Only if it's fully furnished (partly furnished properties do not qualify for w&t).
  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    Depends what you consider partly furnished..
  • jamesm96
    jamesm96 Registered Posts: 523
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    deanshepherd wrote: »
    Depends what you consider partly furnished..

    Which should be influenced by what HMRC consider partly furnished:
    The 10% deduction is given to cover the sort of plant and machinery assets that a tenant or owner-occupier would normally provide in unfurnished accommodation. These are things like:

    movable furniture or furnishings, such as beds or suites,
    televisions,
    fridges and freezers,
    carpets and floor-coverings,
    curtains,
    linen,
    crockery or cutlery,
    plant and machinery chattels of a type which, in unfurnished accommodation, a tenant would normally provide for himself (for example, cookers, washing machines, dishwashers).
    This list isn’t meant to be complete but gives an idea of the assets the wear and tear allowances covers.

    Title to the 10% deduction does not depend on the provision of each and every item in the list. The relief is calculated simply on the net rents and not on the cost of particular items. But the deduction is only due if furnished accommodation is genuinely provided. A furnished property is one that is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and other furnishings, cooker etc. The provision of nominal furnishings will not meet this requirement. If the accommodation isn’t furnished, or only partly furnished, the 10% wear and tear allowance isn’t due.

    http://www.hmrc.gov.uk/manuals/pimmanual/PIM3200.htm

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