When HMRC decided to move the goal posts, stating that students went to University not just to study but to live, it meant that the interaction of capital allowances and the definition of dwellings clashed. Here we explain that despite this change in guidance, there still exists a great deal of benefit in claiming capital allowances on student accommodation property.
As an alternative market for property investors, typically with higher returns than for a typical core investment, combined with the supply and demand economics, many investors are developing purpose built student accommodation.
The one property sector for which claiming capital allowances are excluded from, is one which consists of your main dwelling home and so with the introduction of HMRC briefing 45/10, it categorised the cluster bedroom and studio as being deemed to be a dwelling and therefore ineligible for capital allowances.
It can be easy to overlook the fact that despite this change, the ability to claim capital allowances on student accommodation is still very much available to an investor. Typically, student accommodation buildings consist of clusters flats, but outside of that there are often communal corridors and shared facilities, such as common rooms, laundry, bike stores, plant rooms and management areas. These areas all fall outside of the residential definition and therefore, can still attract capital allowances.
The difficulty then is establishing the proportion of the building cost which can be treated as eligible versus non-allowable i.e. within the dwelling part of the property. It becomes even more complicated when you consider mechanical and electrical services which serve both dwelling and non-dwelling parts of the building.
On considering HMRC’s guidance it should also not be overlooked that for onsite campus student accommodation, the ability to claim on the bedrooms can still be considered providing certain criteria are met.
These often, high income producing assets, can take great benefit by maximising their claims for capital allowances either on behalf of the developing entity or alternatively, to pass over the benefit on disposal, to make a gain on sale.
Veritas Advisory have advised extensively on this expanding sector, including 10,000 rooms this calendar year; if you have any specific queries please contact Clive Curd our student accommodation specialist.