Capital allowance

A capital allowance is a form of tax relief that permits a business to deduct the cost of certain capital assets from taxable profits, rather than treating that cost as a non-deductible capital expense. The relief covers expenditure on plant and machinery, and in some cases structures and buildings, as set out in the Capital Allowances Act 2001. For most residential landlords in the UK, however, a specific restriction in that legislation sharply limits what can be claimed, and understanding that restriction is more useful in practice than understanding the general capital allowances framework.

The dwelling-house restriction

Section 35 of the Capital Allowances Act 2001 provides that expenditure on plant or machinery for use in a dwelling-house does not qualify for plant and machinery allowances. This is the rule that prevents most buy-to-let landlords from claiming capital allowances on items inside their rental properties, including fitted kitchens, white goods, furniture, boilers, bathrooms, and other fixtures or fittings that are part of a residential dwelling all fall within the restriction.

As HMRC's Property Income Manual (PIM3010) confirms, capital allowances on furniture and furnishings cannot be claimed in an ordinary residential property rental business. The restriction applies to the dwelling itself, not to assets used in running the rental business more broadly.

What landlords can still claim capital allowances on

The dwelling-house restriction is not absolute. There are several scenarios where capital allowances remain available to landlords:

Business-use assets. A landlord who incurs expenditure on assets used directly in running the rental business, rather than inside the dwelling, may be able to claim. Examples include office equipment, a laptop used exclusively for managing the property portfolio, or a lawnmower used across multiple properties. These are plant and machinery used in the business, not in the dwelling-house.

Common parts of blocks of flats. Where a landlord owns a building containing multiple dwellings, expenditure on plant and machinery in common areas such as entrance halls, lifts, and corridors may qualify, since those areas are not themselves a dwelling-house. This is a fact-specific area: HMRC has confirmed that common areas in HMOs that function as shared living space, including kitchens, bathrooms, communal living rooms, are treated as part of the dwelling-house and remain restricted. Hallways and lifts are treated differently. Specialist advice is warranted.

Commercial elements of mixed-use buildings. Where a property includes both residential and commercial elements, for example, a flat above a shop, capital allowances may be available on plant and machinery in the commercial parts.

Structures and Buildings Allowance (SBA). From 29 October 2018, the SBA provides relief at 3% per year on qualifying expenditure on new non-residential structures and buildings. It does not apply to dwellings. Landlords with commercial property within their portfolio may be able to claim SBA on eligible construction or renovation costs.

Replacement of domestic items relief: the practical alternative

For standard residential lettings, the primary tax relief mechanism for furnishings and domestic equipment is replacement of domestic items relief, introduced under ITTOIA 2005 section 311A from 6 April 2016. This relief replaced the former 10% wear and tear allowance and operates differently from capital allowances in two important respects: it applies only to replacements of items already in the property (not initial purchases), and it is available whether the property is furnished, part-furnished, or unfurnished.

Qualifying items include moveable furniture, household appliances, kitchenware, soft furnishings, floor coverings, and televisions, essentially, items a tenant uses but which are not fixtures of the building. Fixtures such as boilers, baths, sinks, and built-in cupboards do not qualify for this relief; their replacement is generally treated as a repair to the building, which is deductible as a revenue expense in the normal way. See the entry on repairs for how HMRC draws the boundary between repairs and capital improvements.

The relief is calculated as the cost of the replacement item at like-for-like quality, less any proceeds from disposing of the old item, plus any incidental disposal or installation costs. Where the replacement is an improvement on the original, replacing a standard fridge with a smart appliance, for example, only the cost of a modern equivalent at the original specification is deductible.

From working with self-managing landlords across the UK, we find that replacement of domestic items relief is one of the most consistently underused reliefs available. Many landlords either miss it entirely or assume it only applies to furnished properties, neither is correct.

What changed for furnished holiday lets from April 2025

Before 6 April 2025, furnished holiday lettings (FHLs) that met HMRC's qualifying conditions were treated as a trading activity for certain tax purposes, including capital allowances. FHL landlords could claim plant and machinery allowances on furniture and furnishings inside the let property, an advantage unavailable to ordinary residential landlords.

The FHL tax regime was abolished for income tax from 6 April 2025 and for corporation tax from 1 April 2025. Former FHL properties are now treated as ordinary residential lettings for tax purposes. Landlords who had existing capital allowance pools from FHL expenditure may continue to claim writing down allowances on those pools until they are exhausted, but no new capital allowances can be claimed on items inside what are now ordinary residential lettings. Replacement of domestic items relief is available going forward.

Landlords approaching Making Tax Digital will need to classify capital and revenue expenditure correctly in their digital records from the outset, the capital/revenue boundary determines both what can be expensed against rental income and what must be held for capital gains calculations on eventual disposal.

For the full framework of what landlords can and cannot deduct from rental profits, see August's allowable expenses for landlords guide. For a practical guide to categorising rental property expenditure, including which costs are capital, which are revenue, and where to record them, see August's expense categorisation guide.

Frequently asked questions

Can a residential landlord claim capital allowances on a new kitchen? 

No. A fitted kitchen in a residential dwelling-house is plant and machinery "for use in a dwelling-house" under section 35 of the Capital Allowances Act 2001 and is therefore excluded from plant and machinery allowances. If an old kitchen is replaced on a like-for-like basis, the cost may be deductible as a repair or through replacement of domestic items relief for moveable items. If it is a substantial improvement, it is a capital cost that cannot be expensed against rental income but may be deducted from capital gains on eventual sale.

What is the Annual Investment Allowance (AIA) and does it apply to landlords? 

The AIA allows businesses to deduct the full cost of qualifying plant and machinery in the year of purchase, up to £1 million per year. For landlords, the AIA is only relevant where the expenditure falls outside the dwelling-house restriction, for example, business equipment used in managing the rental portfolio. It does not apply to items inside a residential dwelling-house and does not bypass the section 35 restriction.

What is a balancing allowance or balancing charge? 

When a business disposes of an asset on which capital allowances have been claimed, a balancing calculation is performed. If the disposal proceeds are less than the remaining unrelieved expenditure in the pool, a balancing allowance is given for the difference. If proceeds exceed the pool value, a balancing charge is raised, effectively recapturing some of the relief already given. For former FHL landlords, the abolition of the FHL regime may have triggered balancing adjustments on existing capital allowance pools.

Can I claim capital allowances if I buy a property that the previous owner had claimed on? 

Only if the previous owner pooled the relevant expenditure and you agree the apportionment of the sale price between fixtures and other elements by way of a formal fixtures election or pooling agreement. Without this agreement, the right to claim capital allowances on those fixtures is lost. This is most relevant in commercial property transactions and mixed-use buildings.

The information on this page reflects UK tax law as of May 2026. It is provided for general guidance only and does not constitute tax or financial advice. Landlords should seek advice from a qualified accountant for their specific circumstances.