Understanding what can and cannot be claimed as a capital allowance is critical to completing an accurate tax return and avoiding HMRC enquiries. Many landlords — particularly those who have some familiarity with capital allowances from a business context — assume that significant items of expenditure on their rental properties (a new boiler, a kitchen refurbishment, or a bathroom) can be claimed through the capital allowances regime. For residential lets, this assumption is wrong.
The rules that govern residential property tax relief are primarily contained in the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) and the Capital Allowances Act 2001 (CAA 2001). The interaction between these regimes — what constitutes a repair deductible in full in the tax year it is incurred, what qualifies for RDIR, and what is simply a capital improvement that cannot be deducted at all (except for CGT enhancement purposes) — requires careful analysis.
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 (CAA 2001) are available to businesses for qualifying expenditure on plant and machinery used in the business. 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:
- CAA 2001 s.35 exclusion: Plant and Machinery allowances are not available on plant that is used in a dwelling — this includes furniture, fitted kitchens, bathroom suites, carpets, curtains, and any other item installed or used within a residential let property. The exclusion applies even if the landlord runs their lettings portfolio as a commercial operation
- The exclusion covers both the property and items within it: It is not just the building structure that is excluded — even discrete items of plant (a dishwasher, a washing machine, a fitted wardrobe) do not qualify for AIA or WDA if they are located within a residential dwelling and used for a residential purpose
- Common incorrect claims: Landlords sometimes attempt to claim AIA (Annual Investment Allowance, currently £1m per year) or Writing Down Allowances on replacement boilers, kitchen refurbishments, or bathroom installations in residential lets. These do not qualify as P&M allowances. Depending on the circumstances, a replacement boiler may be a deductible repair (if like-for-like replacement) or non-deductible capital expenditure
- HMRC position: HMRC's Property Income manual (PIM3020 onwards) addresses capital allowances for property businesses and confirms the residential exclusion. An HMRC enquiry into a landlord's return may identify incorrect P&M claims on residential property as a significant adjustment
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 has been the correct mechanism for landlords of furnished residential lets to claim relief on the cost of replacing domestic items. RDIR replaced the old Wear and Tear Allowance (which was abolished at the same time):
- What qualifies for RDIR: Moveable furniture (sofas, beds, wardrobes, dining tables and chairs); furnishings (curtains, carpets, linen, towels); household appliances (washing machines, dishwashers, refrigerators, freezers, ovens, microwaves); kitchenware and crockery. Fixed items that are part of the structure — kitchen units, sanitaryware (baths, basins, WCs) — generally fall outside RDIR
- Replacement only — not initial purchase: RDIR applies only to the replacement of an existing item. If you are furnishing a property for the first time, no RDIR is available for that initial expenditure. The landlord must be replacing something that previously existed in the property
- Like-for-like or nearest modern equivalent: The deduction is limited to the cost of an item of the same or substantially the same standard as the one replaced. If you upgrade (for example, replacing an analogue oven with a smart range cooker), only the cost of the nearest modern equivalent of a similar standard is deductible. The additional cost of the upgrade is not
- Disposal proceeds reduce the deduction: If you receive any proceeds from disposing of the old item (selling the old washing machine, for example), the RDIR deduction must be reduced by those proceeds
- Private use adjustment: Where the landlord or a connected person uses the item partly for private purposes, the deduction must be reduced by a just and reasonable apportionment representing the private use element
Furnished Holiday Lets and capital allowances — the April 2025 abolition
Before 6 April 2025, Furnished Holiday Lets (FHLs) had a significant tax advantage: FHL income was treated as trading income rather than property income, which meant FHL landlords could claim full Plant and Machinery capital allowances — including the Annual Investment Allowance — on furniture, furnishings, and equipment within the FHL property. The 2024 Autumn Budget abolished the FHL regime:
- FHL abolition effective dates: 6 April 2025 for income tax (individuals, partnerships, and trusts); 1 April 2025 for corporation tax (companies). From these dates, income from properties that previously qualified as FHLs is treated as ordinary UK property income
- Capital allowances lost from abolition date: From the abolition date, no new Plant and Machinery capital allowance claims can be made on FHL property expenditure. The trading income treatment — which supported the capital allowances access — no longer applies
- Transitional treatment for existing pools: Capital allowances already in an existing P&M pool at the abolition date continue to attract WDA as the pool is wound down. But no new expenditure after the abolition date can enter the pool for former FHL properties
- RDIR applies instead: From the abolition date, former FHL landlords who let their properties on a short-term basis (now treated as ordinary property income) can claim RDIR for replacement domestic items in the same way as residential landlords. Only replacements qualify — not initial purchases
- CGT advantages also lost: The FHL capital gains advantages — Business Asset Disposal Relief (10% CGT rate), rollover relief, and gift relief — are also removed from the abolition date. FHL disposals from 6 April 2025 (individuals) or 1 April 2025 (companies) are 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 (shops, offices, or business premises), capital allowances remain available on the commercial part. The CAA 2001 s.35 exclusion applies only to the dwelling element — the commercial portion is not excluded:
- Integral features (CAA 2001 s.33A): Certain items are classified as integral features of a building — electrical systems, cold water systems, space or water heating systems, powered ventilation systems, lifts and escalators. These qualify for capital allowances at the special rate pool (6% Writing Down Allowance per year)
- Structures and Buildings Allowance (SBA): Introduced from October 2018, the SBA allows 3% per year relief on the cost of constructing, converting, or renovating non-residential structures and buildings (and qualifying improvements). The SBA does not apply to dwellings — only the commercial or non-residential parts of a building qualify
- Annual Investment Allowance (AIA) on commercial P&M: Furniture, fittings, and equipment used in the commercial parts of a building (a shop fitting, office equipment, commercial kitchen equipment) can qualify for AIA up to £1m per year and WDA on the main pool at 18% per year
- Mixed-use apportionment: For a mixed-use building (for example, a shop with a flat above), the capital allowance claim must be apportioned between the commercial and residential parts. Only the commercial portion's qualifying expenditure is eligible. A just and reasonable apportionment is required — typically by floor area, though HMRC may scrutinise any apportionment that is clearly advantageous to the landlord
- Section 198 election on purchase: When buying a commercial property or a building containing commercial elements, the buyer and seller can make a joint s.198 election under CAA 2001 to fix the value attributed to qualifying fixtures and plant at an agreed amount. This prevents double-claiming between successive owners and gives certainty about the capital allowances base
Frequently asked questions
Can a landlord claim Plant and Machinery allowances on a residential buy-to-let property?+
No. Capital Allowances Act 2001 s.35 expressly excludes plant used in a dwelling from Plant and Machinery allowances. Residential buy-to-let properties do not qualify for Annual Investment Allowance or Writing Down Allowances on furniture, appliances, or fittings within the property. The correct relief for furnished residential lets is Replacement Domestic Items Relief (RDIR).
What is Replacement Domestic Items Relief and what can a landlord claim?+
RDIR (under ITTOIA 2005 s.311A) allows landlords to deduct the cost of replacing existing domestic items in furnished residential lets — sofas, beds, washing machines, carpets, curtains, and similar moveable items. It applies only to replacements, not initial purchases when first furnishing a property. The deduction is limited to the cost of a like-for-like or nearest modern equivalent replacement.
Did the abolition of Furnished Holiday Lets in 2025 affect capital allowances?+
Yes. Before 6 April 2025, FHL income was treated as trading income and FHL landlords could claim full Plant and Machinery capital allowances. From 6 April 2025 (income tax) or 1 April 2025 (corporation tax), the FHL regime was abolished and FHL income is treated as ordinary property income. No new P&M capital allowance claims can be made on former FHL properties from the abolition date. Existing pools continue to attract WDA until exhausted.
Can a landlord claim capital allowances on a commercial property or mixed-use building?+
Yes — but only on the commercial portion. The residential exclusion in CAA 2001 s.35 does not apply to commercial parts. Integral features in the commercial areas qualify for the 6% special rate pool. The Annual Investment Allowance applies to qualifying P&M in commercial parts. The Structures and Buildings Allowance (3% per year) applies to non-residential construction, conversion, or renovation. A just and reasonable apportionment between commercial and residential is required.