Does The Taxman Have A Check With Your Name On It?

After all, if you don't know what I'm about to share with you on this blog, something that could put a lot of money back into your pockets, then my question is, what else are you not aware of that you should know about? One of my favourite sayings is, "You don't know what you don't know." Robert Kiyosaki, the author of Rich Dad, Poor Dad, says, "What you know can make you money, and what you don't know can cost you money."

To become wealthy, it's not just about making money. You need to know about how to keep the money you're making, so i.e. how to minimise your taxes and use the various tax reliefs. Then also, you need to know how to grow your money as well. This is not something that the tax man is going to tell you about. In fact, your accountant may not have told you about this either, because this is very specialist knowledge, and actually they may not know about it.

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If you have HMOs, Houses of Multiple Occupation, Holiday Lets, Serviced Accommodation, or any type of commercial property, such as shops, offices, doctors' surgeries, warehouses, care homes, then you could well get some money back from the tax man.

This is all about capital allowances. Just to be very clear here, this has nothing to do with capital-gains tax allowances. That's something completely different. This is about capital allowances, whereby if you have a qualifying property, you can get back a percentage of the purchase price and a percentage of the refurb costs to offset against your tax.

The capital allowance is based on the investment in plant and machinery, but what does that actually mean? Well, for example, let's say you take a normal house and you convert that into an HMO. Anything you put in on the second fix for the property, such as new wiring, new plumbing, heating systems, fixed soft furnishings like carpets and flooring, that can be claimed.

Another way to look at this is, if you could take a house, and turn it upside down and give it a bit of a shake, anything that does not fall out of the property is something that you can claim for. The capital allowances equate to usually between 10% up to 40% of the initial investment, and the money spent on the property.

Now, for a HMO, it's normally about 18%. That means if you've got a HMO that's cost you about 400,000 in terms of the purchase and the works done on it, then you could get as much as £70,000 as a capital allowance. If you were to offset that capital allowance against your income as a higher-rate taxpayer, it means you get almost £30,000 back from the tax man.

There's a couple of things you should know about this. First of all, only the legal owner of the property can claim the capital allowance. So if you own the property in your own name, you can offset this capital allowance directly against your personal income tax, and also your property income tax. If you own the property in a company, then it's the company that can offset this capital allowance against its corporation tax.

Secondly, capital allowances can only be claimed once in the lifetime of a property. So if an owner has already claimed capital allowances, then you will not be able to make a claim. However, the good news is something like 95% of capital allowances have not been claimed, because most people do not know about this. Now, also there are some property owners who can't claim. So if you have a normal residential property, you can't claim capital allowances. If the property is owned by a council or a pension, they also can't claim capital allowances.

If someone has a property where there could be a capital allowance claim and they've not claimed yet, then you might be able to make a claim. Now, in the Finance Act of 2012, they said that if you buy a property where you could make a claim, but the claim hasn't been made, you only have up to two years to make the claim, or you could lose it.

So if you bought a property before 2012, it's not an issue. If you bought a property in the last two years, you need to get a move on to make sure you can actually make the claim before you run out of time. Now, don't worry if you've bought a normal house from a previous owner, because they couldn't claim, but if you've then converted it into an HMO, then you can claim. It doesn't matter when you've done that, you can still claim for it.

I saved an absolute fortune in tax when I first learned about this in 2010, and I did this for all of my HMO properties. However, in 2014 HMRC decided they didn't want to allow people to claim capital allowances on HMOs. Other commercial properties, fine, but you can't do it on HMOs. So anyone who wanted to claim would have to take them to court to challenge them.

Well, that has happened. Actually, in 2019 a claim was successfully challenging HMRC. So the precedent has now been set. So you can, again, claim against HMOs. Remember, this is not just for HMOs, but if you have serviced accommodation, if you have holiday lets, or any type of commercial property, you could potentially claim a capital allowance. If you don't have these type of properties yet, but you're planning to get into them, then this might be a great way of you getting some of your initial investment back, which means you're going to get a higher Return on Investment.

So, how do you actually claim? Well, first of all, you need to get a specialist surveyor to assess the property and produce a report. That report then goes to your accountant, who can put the relevant information into your tax return as sideways loss relief. Now, if you are an employee and you're pay-as-you-earn, PAYE, then you can get a refund back from the tax man once you've submitted your tax return. If you're self-employed and pay your own tax at the end of your tax year, then you don't need to pay that tax, and you can use that money right now.