HMO and Multi-Let Common Parts Capital Allowances: The CAA 2001 s.35 Carve-Out for 2026/27

The capital-allowances framework for multi-let residential property turns on one narrow boundary line. The Capital Allowances Act 2001 s.35 bars plant-and-machinery allowances on plant for use in a dwelling-house. The carve-out for true common parts of a multi-occupied building is much narrower than the popular framing suggests, and the case that defines its current scope, Hora Tevfik v HMRC (First-tier Tribunal, 2019), turned on whether the landlord could evidence the apportionment between dwelling and non-dwelling areas with quantity-surveying-grade precision. Tevfik lost because he could not.

This page walks the s.35 statutory bar, the dwelling-house definition trail through HMRC Capital Allowances Manual CA11520 and the case-law tests, the working scope of true common parts in a multi-let block of self-contained flats (rather than the loose framing that HMO communal kitchens and bathrooms count), the Tevfik decision and what it actually accepted, the integral-features special-rate treatment at 6 per cent for lifts and risers, the Building Safety Act 2022 fire-safety capital programme and where it interacts with the dwelling-house boundary, the associated-companies AIA squeeze for an HMO or flats-block portfolio under common ownership, and a worked 8-flat purpose-built block refurbishment.

The CAA 2001 s.35 bar in its current form

Section 35 of the Capital Allowances Act 2001 reads in its operative subsection: "The person's expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house." Subsection (1) limits the scope to persons carrying on a qualifying activity consisting of a UK property business, an overseas property business or special leasing of plant or machinery. Subsection (3) requires a just-and-reasonable apportionment where the same plant or machinery is provided partly for use in a dwelling-house and partly for other purposes.

The section was originally enacted on 22 March 2001 as part of the consolidating Capital Allowances Act, amended by the Income Tax (Trading and Other Income) Act 2005 for property-business terminology, and most recently amended by Finance Act 2025 for accounting periods beginning on or after 1 April 2025 in line with the FHL abolition and the related qualifying-activity changes at s.15. The current wording is the version verified against the legislation.gov.uk text on 2026-05-23.

The s.35 bar is unconditional within its scope. It is not a discretion. It is not subject to a worked-example carve-out for active management or service provision. The single discretion in the section is the just-and-reasonable apportionment under subsection (3) where the plant is in mixed use. The apportionment is the working route on common-parts claims that pass the threshold question of whether any of the spend is outside a dwelling-house at all.

What is a dwelling-house and where does it stop

The Capital Allowances Act does not define dwelling-house. The definition comes from HMRC's Capital Allowances Manual at CA11520 and from the property-law authorities the manual relies on, principally the Court of Appeal in Uratemp Ventures and the older line of authority on rating and housing legislation. HMRC's manual position is that a dwelling-house is "a building, or a part of a building" whose distinctive characteristic is its ability to afford "the facilities required for day-to-day private domestic existence (namely, bathroom and kitchen facilities and a place to rest and sleep)." The manual emphasises the physical features of the building rather than the actual use being made of it at the time of the claim.

On HMOs specifically, the manual is direct. CA11520 states HMRC's position that an HMO is usually a single dwelling-house, and goes further by instructing officers to "notify the Capital Allowances single point of contact" if they encounter a claim that shared parts in an HMO qualify separately for plant-and-machinery allowances. The position is that hallways, stairs, landings, attics and basements within a typical HMO are within the dwelling-house and the s.35 restriction applies.

The position is materially different for a purpose-built block of self-contained flats. Each flat in such a block contains its own kitchen and bathroom facilities and is itself a complete dwelling-house. The lobby of the block, the main staircase, the lift shaft, the mains electrical riser, the communal heating plant in the basement and the communal cold water tank in the roof space are not part of any one of those flats. They are not within any one dwelling-house. The s.35 restriction does not reach them, and capital-allowances claims on plant and machinery within those true common parts are available subject to the ordinary rules.

Hora Tevfik v HMRC and the working scope of the carve-out

Hora Tevfik v HMRC (First-tier Tribunal, Tax Chamber, 2019, reference TC07129) is the working authority on the s.35 boundary for HMOs and multi-let buildings. Mr Tevfik owned three HMO properties and claimed plant-and-machinery allowances on substantial fit-out spend across the three buildings, including on furniture and fittings in the shared kitchens, shared bathrooms and shared living areas of the HMOs as well as on fixtures in the genuinely shared circulation areas.

The tribunal confirmed HMRC's position that the HMOs in question were each a single dwelling-house. The shared internal facilities were within the dwelling-house and the s.35 restriction applied to plant and machinery in those facilities. The tribunal did accept, in principle, that true common parts (entrance lobbies, communal corridors that are not part of any dwelling, lifts in larger HMOs, fire alarm systems and electrical systems serving the building as a whole) can fall outside the dwelling-house restriction where the building is structurally configured so that those parts are not within any single dwelling.

Mr Tevfik's claim still failed in full. The reason was the apportionment burden. The tribunal held that the burden of demonstrating the apportionment between dwelling-house spend (barred) and true-common-parts spend (potentially claimable) was on the landlord. A single global expenditure figure with no breakdown attributable to the common-parts side of the boundary could not be allowed in part. The tribunal could not assess the carve-out claim on the evidence Mr Tevfik provided.

The case has two practical lessons. First, the carve-out exists but is narrow, and the underlying-building structure matters more than the operational characterisation. A purpose-built block of self-contained flats has a wider carve-out (the true common parts that serve all flats) than an HMO with shared internal kitchen and bathroom facilities. Second, claim documentation has to be contemporaneous and itemised. A quantity surveyor's apportionment report prepared at the time of the works, identifying every item, its location in the building, and whether that location is within or outside a dwelling-house under the building's structural layout, is the working evidence pack. Reconstructing it after an enquiry is materially harder.

What actually qualifies in a block-of-flats common-parts claim

For a multi-let block of self-contained flats with genuine common parts, the working scope of qualifying expenditure runs across several pools.

The main pool at 18 per cent reducing balance writing-down allowance receives general plant and machinery in the common parts: fire alarm systems serving the building, smoke detection and emergency lighting in common-parts stairwells and corridors, CCTV and door entry systems, communal washing machines and tumble dryers (if a communal laundry exists in true common parts), communal lounge furniture (if a communal lounge is part of the common parts rather than within any flat), security systems, and miscellaneous plant.

The special-rate pool at 6 per cent reducing balance receives integral features within the common parts, as defined by CAA 2001 s.33A. The five integral-features categories are electrical systems including lighting, cold water systems, space or water heating systems and powered ventilation, lifts, escalators and moving walkways, and external solar shading. A lift serving the block, the building's mains electrical system from the meter through to the riser, the communal cold water tank and distribution, the communal boiler and heating distribution serving multiple flats, the ventilation plant on the building roof, and any external solar shading on the building exterior all sit in the special-rate pool when the relevant fixed-asset spend is on the common-parts side of the s.35 boundary.

The Annual Investment Allowance at 100 per cent in the period of incurring is available across both pools up to the £1m permanent cap at CAA 2001 s.51A. The cap is shared across associated companies under common control (s.51E + s.51G), so a flats-block portfolio of multiple SPVs shares a single £1m allowance. Allocation between SPVs and across main-pool and special-rate-pool spend is a planning decision at the period-end return.

Full expensing at 100 per cent under CAA 2001 s.45S is available where the relevant spend qualifies and the company is within the charge to corporation tax. The unused-and-not-second-hand test applies, so full expensing fits new-build common-parts plant rather than acquired second-hand fixtures. The 50 per cent special-rate FYA companion is available on integral features that satisfy the same conditions. Both routes ran on from 1 April 2023 and were confirmed permanent by Autumn Statement 2023. Bucket sibling page C5 on full expensing walks the qualifying tests.

The Building Safety Act 2022 fire-safety capital programme

The Building Safety Act 2022 framework, layered over the post-Grenfell fire-safety remediation programme, has driven a step change in landlord capital expenditure on multi-let buildings since the Act commenced. Building safety case documentation, fire risk assessments under the updated Regulatory Reform (Fire Safety) Order 2005 regime, and remediation programmes for high-risk buildings have all produced material spend on fire alarms, sprinkler systems, smoke control, emergency lighting, fire-resisting doors, building-wide compartmentation, and external wall cladding remediation.

For a multi-let block of self-contained flats: a building-wide fire alarm and detection system covering the common parts is plant in true common parts and falls within the s.35 carve-out. An emergency lighting installation in common-parts stairwells and corridors is similarly within the carve-out. A sprinkler riser serving the building is integral feature expenditure on the cold water systems category within the s.33A list, and qualifies on the common-parts side. Smoke control plant in the common-parts ventilation system is integral feature expenditure on the space or powered ventilation category. Fire-resisting doors at flat entrances on the common-parts side of the entrance threshold sit on the common-parts boundary and are usually claimable (with documentation supporting the placement).

External wall cladding remediation is more nuanced. Cladding is generally part of the building shell and is structures-or-buildings rather than plant for s.21 and s.22 purposes. In some cases, where the cladding incorporates thermal insulation of the building, the s.28 thermal insulation route within CAA 2001 makes part of the spend qualifying plant expenditure. The analysis is fact-specific and depends on the remediation specification. SBA at the 3 per cent straight-line rate may pick up the remainder where the building meets the 29 October 2018 construction-date gate and the residential-use exclusion at s.270CF does not bite. Bucket sibling page C3 on SBA walks the SBA mechanics.

Within individual flats, fire-safety equipment is inside a dwelling-house and the s.35 restriction applies regardless of the BSA 2022 driver for the spend. The Act drives the expenditure; it does not alter the qualifying-activity gate or the dwelling-house restriction in the Capital Allowances Act.

The s.51E associated-companies AIA squeeze on portfolios

Where the multi-let block or HMO portfolio is held in a structure of multiple SPVs, the AIA available to the portfolio is usually a single £1m, not £1m per SPV. The rule is at CAA 2001 s.51E, which provides that two or more companies under common control that are related to each other are entitled to a single AIA between them. The related-companies test at s.51G has two limbs.

The first limb, the shared premises condition, is satisfied where the companies' premises are at the same address. A portfolio where the SPVs all share a registered office and a trading address at the property manager's offices typically meets this limb.

The second limb, the similar-activities condition, is satisfied where the companies' activities are within the same first-level NACE classification with more than 50 per cent turnover overlap. NACE 68.20 is "Renting and operating of own or leased real estate," which covers buy-to-let, HMO operation and block-of-flats letting alike. A flats-block or HMO portfolio whose SPVs all carry on letting and operating of own real estate will satisfy this limb regardless of the registered-office position.

The allocation of the £1m AIA across the portfolio is a planning decision the group makes at the chargeable-period end. The decision is documented in the AIA claim on each SPV's CT return. Allocation is usually directed to the SPV with the largest qualifying-spend period to maximise the first-year write-off. Bucket sibling page C4 on AIA allocation walks the mechanics for a worked HoldCo and three-SPV scenario.

The £1m cap is the same for one SPV or for ten SPVs in a related group. The squeeze is real on portfolios doing large fire-safety remediation programmes or large refurbishments of common parts: a £1.4m programme across three SPVs claims £1m via AIA in the first period (allocated as the group decides), with the £400k surplus pooling at 18 per cent or 6 per cent. With full expensing available on qualifying new-build company spend, the surplus on main-pool fire-safety plant can be written off in full in the period; the special-rate slice writes off at 50 per cent in the period and 6 per cent reducing balance thereafter.

Worked refurbishment: 8-flat purpose-built block, £62,500 common-parts spend

An anonymised SPV holds an 8-flat purpose-built block (eight self-contained one-bedroom flats with kitchen and bathroom in each flat, plus an entrance lobby, a single staircase, no lift, a basement with the communal boiler and electrical meter cupboards, and a roof with the communal cold water tank). The SPV undertakes a £62,500 refurbishment programme in the chargeable period ending 31 March 2027. Each flat's interior is excluded from the analysis because the dwelling-house bar applies in full.

The qualifying spend in the common parts breaks down as follows. Fire alarm and detection system across lobby, staircase and basement: £12,000 (main-pool plant). Emergency lighting in lobby and staircase: £3,500 (main-pool plant). New door entry system at the front entrance: £4,000 (main-pool plant). Replacement communal boiler in basement serving all eight flats: £18,000 (integral feature, special-rate pool). Rewiring of the communal electrical riser from the meters to each flat front door: £8,000 (integral feature, special-rate pool). Refurbishment of the communal cold water tank and distribution to the flats: £5,000 (integral feature, special-rate pool). Refurbishment of common parts lighting (LED fittings in lobby and staircase): £2,500 (integral feature, special-rate pool, electrical lighting category at s.33A(5)(a)). CCTV system in lobby and on building exterior: £3,500 (main-pool plant). Painting and decoration of common parts (revenue not capital, excluded from the claim): £6,000 (revenue deduction, not a capital allowance).

Capital-allowances-eligible spend totals £56,500 across both pools (£23,000 main pool plus £33,500 special-rate pool). The £6,000 revenue spend is deducted from the property business profits in the period under the ordinary revenue rules.

The SPV is not in a related-companies group (sole asset). It claims AIA in full on the £56,500: the AIA covers the whole spend and the entire capital-allowances claim is a 100 per cent first-year write-off. Taxable property profits for the period drop by £56,500 from the AIA claim plus £6,000 from the revenue deduction, total £62,500 reduction in taxable profits. At the main 25 per cent CT rate, the tax saving is £15,625. The economics of the refurbishment improve materially against the do-nothing baseline.

The documentation pack supporting the claim consists of: a floor plan marked with the dwelling-house boundary and the common-parts boundary, signed by the building manager; a quantity surveyor's apportionment report identifying each item, its installation location, its category (main-pool, special-rate, revenue) and its eligibility; copies of all invoices tied to the QS report; and the building safety case documentation showing the fire-safety elements were part of the BSA 2022 remediation programme. The pack defends the claim against an HMRC enquiry on the carve-out.

Five mistakes HMO and flats-block landlords make on capital-allowances claims

The first mistake is treating shared HMO kitchens and bathrooms as common parts. They are not under HMRC's CA11520 view and they were treated as within the dwelling-house in Tevfik. The relief route for replacing appliances in HMO shared kitchens is the replacement of domestic items relief at ITTOIA 2005 s.311A on a revenue basis, not capital allowances.

The second mistake is treating the s.35 carve-out for true common parts as wide. It is narrow and turns on the building's structural layout (self-contained flats versus shared-amenity HMOs) rather than the operational characterisation of the business. A serviced HMO is still an HMO, not a block of flats, for s.35 purposes.

The third mistake is failing to prepare a contemporaneous quantity surveyor's apportionment report. Tevfik lost on this point; the burden of proof is on the landlord and global figures will not be allowed in part. A QS report prepared at the time of the works is the working defence on enquiry.

The fourth mistake is over-claiming on flats-block portfolios by forgetting the associated-companies AIA squeeze. A five-SPV portfolio shares a single £1m AIA, not five £1m allowances, under s.51E and s.51G. The squeeze cuts the first-year write-off on large refurbishment programmes; the surplus pools at 18 per cent or 6 per cent, or is captured by full expensing on qualifying new-build company spend.

The fifth mistake is missing the BSA 2022 fire-safety capital programme spend in historical claims. The fire alarms, emergency lighting, sprinkler systems and smoke control plant installed during 2022 to 2025 in flats-block portfolios are frequently still un-claimed because the original invoices were not characterised at the time. A retrospective review can capture the claim within the four-year amendment window for CT returns.

Where this page sits in the Bucket C cluster

This page is the dwelling-house carve-out and HMO depth page for the Bucket C cluster. It sits downstream of the pillar page C1 on capital allowances for property investors, which establishes the four-axis decision framework (claimant, property type, expenditure type, vehicle) and identifies the s.35 dwelling-house restriction as the cluster's central misconception. It interacts with C4 on AIA allocation on the associated-companies squeeze for portfolios, with C5 on full expensing on the new-build company spend route, and (forthcoming in this bucket) with the FHL post-April-2025 page on the absorption of former FHL operators into the property business with the s.35 restriction biting in full.

The HMO and flats-block analysis above applies for chargeable periods ending in 2026/27 onwards and reflects the legislation as enacted at 23 May 2026. The s.35 wording, the s.33A integral features list, the s.51A £1m AIA cap, the s.51E + s.51G associated-companies rule, and the s.45S full expensing route are all verified against the legislation.gov.uk text on that date. The Hora Tevfik decision (FTT TC07129, 2019) remains the working First-tier Tribunal authority on the s.35 dwelling-house and common-parts boundary for multi-let residential property at the date of publication.