HMRC To Pay For Your Next Property – Capital Allowances


Simon Misiewicz

20th February 2015

19th February 2015 – Simon Misiewicz

Are you feeling the pain of being a high rate tax payer?

Are you being taxed twice a) PAYE and on b) property income?

The Diagnosis

Tax issues need to be diagnosed in order to be understood and a remedy implemented.

If you are earning a decent wage from your job, then you are likely to be paying 40/45% tax on your earned income. What’s worse is that when you then buy properties you will then be taxed again at 40/45% on those profits (1).

It makes you wonder “is it worth it”?. I am here to tell you to think differently. Get HMRC to help you invest in the next property. That’s right, get HMRC to help you invest in the next property!

The Treatment

Applying the right tax reducing medicine to your tax illness.

If you buy a HMO and within the “shared areas” there is a lot of lighting, heating equipment, high-end kitchens and bathrooms then it is likely that the investment of these components will be considerable. As such you can claim capital allowances that can be used for the components in the “shared areas”.

If you add up the component costs as outlined above to be (for example) £50,000 then it is likely that you can claim capital allowances and for his article we will use a basic example of capital allowances rate being 18% (2). As such the capital allowances would be £9,000 to offset against the property income.

Better still, at the time of writing, you could claim first year allowances up to the value of £500,000 (3). In this example the person invested £50,000 which can then be offset against the property profits.

What if the property profits were only £10,000. The great news is that the remaining £40,000 capital allowances not utilised can then be offset against PAYE income meaning that the tax reclaim from HMRC would amount to £16,000 (£40,000 X 40%) as a basic example.

Applying the treatment

Now we have identified the treatment, here are a few ways that you can apply it to your tax pains.

You will need to obtain a RICS survey report that identifies the component costs within the property and they will work with your accountant to identify the capital allowances to be entered into your tax return.

By the time you have finished, HMRC will start to help you build a property portfolio.

Precautionary measures

If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please book an “Initial Free Consultation” on the below website:

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