HM Revenue and Customs Brief 45/10
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Capital allowances changes to guidance: meaning of
Issued 22 October 2010
On 29 December 2008, HM Revenue & Customs published a
Brief (R&C Brief 66/08) seeking comments on certain proposed
revisions to guidance in the Capital Allowances Manual (CAM).
One of the proposed revisions concerned an update to guidance
on the meaning of ‘dwelling-house’ for the purposes of Section 35 of
the Capital Allowances Act (CAA) 2001. S35/CAA01 provides that
expenditure on plant or machinery 'for use in a dwelling-house' does
not qualify for capital allowances in certain cases, for example, in
the case of an ordinary or overseas property business.
Currently, relevant sections of the CAM (such as CA11520 and
CA23060) state, for example, that University halls of residence are not
dwelling-houses. However, R&C Brief 66/08 pointed out that the
provision of student accommodation has evolved considerably over the
years, and that those parts of the CAM therefore require to be updated.
Nowadays, students and other tenants often live in cluster
flats or houses in multiple occupation. For example, typical student
accommodation might consist of a building with four floors, each
containing a separate flat with (say) six lockable study-bedrooms, each
with its own en suite facilities. The kitchen/dining room and lounge/TV
room for each flat might typically comprise communal areas, for use by
the six occupants of that flat.
Specifically for Part 10 of CAA01 (Assured Tenancy Allowances
or ATAs) the term 'dwelling-house' is given the same meaning as in the
Rent Act 1977 (CAA01/S531). This is unsurprising because the assured
tenancy scheme was introduced in the Housing Act 1980 to encourage the
construction of residential properties for letting.
Because of this legislative reference, HMRC originally
assumed that the term would have the same meaning in other Parts of
CAA01, and went on from that assumption to conclude that the individual
study bedrooms (in the student accommodation example above) would
comprise separate 'dwelling-houses' (because each allowed for exclusive
occupation and access*), but that the communal kitchen/diner and
lounge/TV rooms were not part of the dwelling-house(s). This was the
view expressed in R&C Brief 66/08.
*Following the decision in Uratemp Ventures Ltd. V Collins
 UKHL 43, which was a decision under the Housing Act 1988, and
which found that a hotel room could be a dwelling-house, despite the
absence of cooking facilities.
Practitioners expressed reservations about R&C brief
66/08 and HMRC therefore invited their further input and discussions.
In 2009 HMRC wrote to commentators to clarify that taxpayers should
continue to file returns based on the existing published guidance and
that any change to the existing guidance would only be applied, at the
earliest, to expenditure incurred on or after the date of the formal
HMRC is, however, naturally keen to remove this area of
uncertainty as soon as possible and has therefore sought further legal
advice to inform the updated view expressed in this Brief, which will
subsequently be included in the revised CAM.
As a result of this further advice, HMRC now considers that
the meaning of 'dwelling-house' for Part 10 (which is the Rent
Act/Housing Act meaning) is specific to that Part, and that the term in
other Parts of CAA01 takes its ordinary, everyday meaning.
There are, in fact, several references to ‘dwelling-house’ in
other parts of CAA01: in Part 2 (plant and machinery allowances), Part
3 (industrial buildings allowances), Part 3A (business premises
renovation allowances) and Part 6 (research & development
allowances). Applying the Rent Act/Housing Act meaning to those other
Parts would be inappropriate. For example, S277/CAA01 specifically
excludes both hotels and dwelling-houses from being an industrial
building; the drafter must, therefore, have seen these forms of
accommodation as separate and distinct from one another, and this is
indicative of the wider legislative intention.
In Uratemp, against the background of the Housing Act, it was
pointed out that the purpose of that Act was to give a measure of
security to those who make their homes in rented accommodation, at the
lower end of the housing market. And, in that particular context, a
hotel room containing a shower and basin but no cooking facilities was
found to constitute a separate dwelling. In Gravesham* it was held that
the distinctive feature of a dwelling house for the purposes of the
Town and Country Planning General Development Order, since replaced by
the Use Classes Order, was its ability to afford to those who use it
the facilities required for day-to-day private domestic existence. The
Use Classes order currently distinguishes between dwelling houses,
whether used by a single household or as a house in multiple occupation
(classes C3 and C4), and various categories of residential institution
such as hospitals, nursing homes, etc, (C2), prisons and military
barracks (C2A), and hotels and hostels (C1).
* Gravesham Borough Council v Secretary of State for the
Environment (1982) 47 P&CR 142
On further reflection, HMRC have concluded that the
definition based on the presence of the facilities required for
day-to-day private existence is a better everyday description, bearing
in mind that the question remains essentially one of fact, so that
unusual or controversial cases may still need to be considered in the
light of their individual facts and circumstances.
Returning to the example of student accommodation at
paragraph four above, HMRC have concluded that the better view is that
each flat in multiple occupation comprises a dwelling-house, given that
the individual study bedrooms alone would not afford the occupants 'the
facilities required for day-to-day private domestic existence'. In
other words, the communal kitchen and lounge are also part of the
dwelling-house. The common parts of the building block (such as the
common entrance lobby, stairs or lifts) would not, however, comprise a
The relevant sections of the CAM, which are being revised to
reflect this updated view are attached to this Brief for information at
Allowances: Meaning of Dwelling House (PDF 18K )
The updated view, as expressed in the revised guidance will
apply in all circumstances in relation to capital expenditure incurred
on or after 22 October 2010.
In relation to capital expenditure incurred on or after 29
December 2008 but before 22 October 2010 HMRC will either accept
capital allowances claims in returns made in respect of communal areas
on the basis of the view as set out in R&C Brief 66/08 or on
the basis of the view as previously set out in CA11520 and CA23060.
In relation to capital expenditure incurred before 29
December 2008 claims made in returns for open years and filed before 22
October 2010 relying on R&C Brief 66/08 will also be accepted.
CT & VAT
Capital Allowances Team
100 Parliament Street
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questions or comments concerning this R&C Brief.
Tel: 020 7147 2610
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Article Published/Sorted/Amended on Scopulus 2010-11-01 15:16:11 in Tax Articles