Expenditure on altering or improving dwelling houses has never qualified for capital allowances. Landlords of furnished buy-to-let properties were previously able to compensate for this to some extent by claiming the wear and tear allowance.

The wear and tear allowance was abolished in April 2016. This was a blow to residential property investors, because although they are still able to claim a tax deduction for the cost of replacing furnishings on a like for like basis, this relief is much less generous than the wear and tear allowance, which was equal to 10% of rental income regardless of whether any expenditure was actually incurred.

For most residential landlords there was no choice but to put up rent or absorb the additional tax cost. However, landlords who have joined the trend of converting single occupancy homes or other buildings into Houses in Multiple Occupation (HMOs) or flats should seek advice, because they may have some scope to claim capital allowances that a standard single occupancy landlord does not.

Why Might HMOs and Flats Qualify?

The reason HMOs and flats might qualify for capital allowances, whereas single occupancy homes do not, lies in HMRC’s interpretation of what constitutes a dwelling house. Individual rooms or flats are treated as separate dwelling houses, but HMRC accepts that genuine common parts are not. Since capital allowances are only prohibited on dwelling houses, this means claims can potentially be made on plant and machinery included in true common areas.

Because of this interpretation, some landlords were quick to claim allowances on kitchens and bathrooms that had been converted into shared rooms within a house. Unfortunately, this does not work. HMRC has clarified its view that where individual rooms do not provide residents with the facilities required for everyday private domestic existence, the shared facilities meeting that need, including kitchens, bathrooms and living rooms, will still fall within the definition of a dwelling house.

A significant amount of expenditure is therefore precluded from qualifying. That said, there is still scope to claim for items such as plumbing systems, electrical systems, lighting and lifts within genuine common areas such as corridors, hallways and basements. For small scale projects, the professional costs of pursuing a claim are likely to outweigh the tax benefit, but for larger scale conversions this can still result in a meaningful tax saving, and is worth discussing with a specialist adviser before assuming the position either way.

Why This Matters More Than It Used to

This is a good moment to flag a related change that makes the common parts route more relevant than it once was. The Furnished Holiday Lettings regime, which for many years gave qualifying holiday let owners full capital allowances on plant and machinery inside the let property itself, was abolished from April 2025. Furnished holiday lets are now taxed under the same rules as standard rental property, including the same dwelling house restriction described above.

With that route now closed, the common parts argument for HMOs and converted flats is one of the few remaining ways a residential landlord can access capital allowances at all, rather than being limited to the more modest replacement of domestic items relief. Anyone running or converting an HMO, or planning to, should treat this as worth a proper review, not an afterthought.

The Practical Takeaway

  • Capital allowances are still firmly excluded on anything inside a dwelling house, individual rooms and self-contained flats included
  • Genuine common areas, hallways, corridors, lifts and basements, are a different category, and plant and machinery within them can potentially qualify
  • Converting a shared kitchen or bathroom out of individual rooms does not turn that space into a qualifying common area, HMRC’s test looks at whether residents’ everyday needs are being met there, not simply how the room is labelled
  • The abolition of the Furnished Holiday Lettings regime from April 2025 makes this common parts route more important for residential landlords generally, not less
  • Whether a claim is worth pursuing depends on the scale of the conversion, small projects rarely justify the cost of a proper claim, larger ones often do

If you’re converting a property into an HMO or a set of flats, or have already done so, it’s worth having your plans reviewed against this specific test before assuming either that everything qualifies, or that nothing does. Both assumptions are common, and both can be expensive to get wrong.

How We Help

Getting the dwelling house line right takes more than reading the rules, it takes a proper survey of what was actually spent and where. We review your conversion costs against HMRC’s common parts test, identify which fixtures and areas genuinely qualify, and prepare a defensible capital allowances claim, so you claim everything you’re entitled to without overreaching into territory HMRC will challenge.

If you are an HMO landlord building or managing a wider rental portfolio, this claim is just one part of the bigger picture. Our HMO landlord and property investor accountants work with landlords across the UK on everything from ownership structure to Capital Gains Tax planning, so your HMO fits properly into your overall tax position, not treated in isolation.