Why residential buy-to-let does not qualify for Plant and Machinery allowances
Plant and Machinery (P&M) allowances under the Capital Allowances Act 2001 are available to businesses for qualifying expenditure on plant and machinery. The critical restriction for residential landlords is that dwellings used wholly or mainly for residential purposes are excluded from P&M allowances by CAA 2001 s.35. This applies to the property itself and to all items installed or used within a residential dwelling.
- CAA 2001 s.35 exclusion: no P&M allowances for plant in residential dwellings — covers furniture, white goods, fitted kitchens, bathroom suites, carpets, curtains, and all items within the let property
- The exclusion applies even where the landlord runs their lettings portfolio as a commercial operation — residential letting income is not treated as a trade for capital allowance purposes
- Common incorrect claims: AIA or WDA on replacement boilers, kitchen refurbishments, or bathroom installations in residential lets. These do not qualify as P&M allowances
- Repair vs capital: a like-for-like boiler replacement is a deductible repair expense (deductible in full in the tax year incurred). A boiler upgrade to a higher specification may be a capital improvement — neither deductible as a repair nor claimable as P&M; it is an enhancement for CGT purposes only
Replacement Domestic Items Relief — the allowance that applies to furnished residential lets
Since 6 April 2016, Replacement Domestic Items Relief (RDIR) under ITTOIA 2005 s.311A replaced the old Wear and Tear Allowance for furnished residential lets. RDIR allows landlords to deduct the cost of replacing existing domestic items — but NOT the initial cost of purchasing those items when the property is first furnished.
- What qualifies: moveable furniture (sofas, beds, wardrobes); furnishings (curtains, carpets, linen); household appliances (washing machines, dishwashers, fridges, ovens); kitchenware. Fixed items such as kitchen units and sanitaryware generally fall outside RDIR
- Replacement only — not initial purchase: the relief applies only to replacing an existing item with a new item of the same or substantially the same standard. First-time furnishing expenditure does not qualify
- Like-for-like or nearest modern equivalent: where a direct replacement is not available, the deduction is the cost of the nearest modern equivalent of a similar standard. The additional cost of upgrading to a better model is not deductible
- Adjustments required: reduce the deduction by any proceeds received on disposal of the old item; adjust for any private use element by the landlord or a connected person
Furnished Holiday Lets and the April 2025 abolition — impact on capital allowances
Before 6 April 2025, FHL businesses could claim full Plant and Machinery capital allowances because FHL income was treated as trading income. The 2024 Autumn Budget abolished the FHL regime with effect from 6 April 2025 (income tax) and 1 April 2025 (corporation tax), removing this advantage.
- From the abolition date, FHL income is taxed as ordinary property income — the P&M capital allowance access is lost for all new expenditure
- Existing pools continue: capital allowances already in a P&M pool at the abolition date continue to attract WDA as the pool winds down. No new expenditure can enter the pool after the abolition date
- RDIR applies from abolition date: former FHL landlords can now claim RDIR for replacement domestic items on the same basis as other residential landlords — replacements only, not initial purchases
- CGT advantages also lost: Business Asset Disposal Relief (10% rate), rollover relief, and gift relief for FHL disposals are removed from the abolition date. Former FHL disposals are now taxed as residential property gains
Capital allowances on commercial and mixed-use property
Where a landlord owns commercial property or a building with a commercial element, capital allowances remain available on the commercial part. The CAA 2001 s.35 residential exclusion applies only to the dwelling element.
- Integral features (CAA 2001 s.33A): electrical systems, cold water systems, space or water heating systems, powered ventilation, lifts — special rate pool at 6% WDA per year
- Structures and Buildings Allowance (SBA): 3% per year on constructing, converting, or renovating non-residential structures. Does not apply to dwellings — only the commercial or non-residential parts of a building qualify
- AIA on commercial P&M: furniture, fittings, and equipment in the commercial parts qualify for AIA (up to £1m) and WDA at 18% (main pool)
- Mixed-use apportionment: a just and reasonable apportionment between commercial and residential is required — typically by floor area. Only the commercial portion's qualifying expenditure is eligible