Capital Allowances
Quick answer
Tax relief for capital spending on qualifying "plant and machinery". For a standard residential letting they are generally NOT available — furniture and appliances are covered instead by Replacement of Domestic Items Relief. Capital allowances mainly apply to equipment in the communal areas of some HMOs and to commercial property; the furnished holiday let regime that allowed them was abolished from April 2025.
At a glance
- Standard BTL
- Generally not available
- Where they apply
- HMO communal plant, commercial property
Full guide
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Open full guideWhy Capital Allowances matters for landlords
Landlords often assume they can write down the cost of a new boiler, kitchen or furniture as capital allowances the way a business does — for ordinary residential lets, they usually cannot. Inside a dwelling, replacing domestic items goes through Replacement of Domestic Items Relief, and improvements are capital costs set against CGT on sale. The genuine capital-allowances opportunity is narrow (communal-area plant in a larger HMO, or commercial units), and with the furnished holiday let regime gone from April 2025 the old FHL route no longer exists.
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Official sources
LetCompliance editorial reviews this entry every quarter against the sources above. Always confirm specific duties with a qualified solicitor or your local council.
Related terms
Furnished Holiday Let (FHL)
A short-let property meeting the FHL availability and letting tests (210 days available, 105 days actually let, etc.). Treated as a trade for tax purposes until 5 April 2025, with full mortgage interest deduction, capital allowances on furniture and fittings, and Business Asset Disposal Relief on sale. From 6 April 2025 the FHL regime was abolished by the Finance Act 2024: existing FHLs fall under standard property income rules and Section 24 mortgage interest restriction applies in full.
Capital Expenditure vs Revenue Expenditure
The line that decides whether a cost reduces your rental profit now or your Capital Gains Tax later. Revenue expenditure (repairs, maintenance, replacing like-for-like) is deducted from rental income in the year you spend it. Capital expenditure (improvements, extensions, first-time installation of something new) is added to the property’s cost base and only counts against CGT when you sell.
Capital Growth
The increase in a property’s market value over time, as distinct from the rental income it produces. It is only realised (and taxed, via Capital Gains Tax) when the property is sold. Many landlords weigh capital growth against rental yield when choosing where and what to buy.
Capital Gains Tax (CGT)
Tax on the profit from selling a rental property. From April 2024 the CGT annual exempt amount was reduced to £3,000 and residential property gains are taxed at 18% (basic rate) or 24% (higher rate). A CGT return must be filed and tax paid within 60 days of completion.
Interest-Only Mortgage
A mortgage where the monthly payment covers only the interest, leaving the original capital to be repaid at the end of the term. Most buy-to-let mortgages are interest-only because it maximises monthly cashflow and, historically, the tax treatment of interest. The capital must still be repaid eventually — usually by selling or remortgaging the property.
BTL (Buy-to-Let)
A mortgage product and business model where a property is purchased specifically to rent out. Buy-to-let landlords are subject to Section 24 of the Finance Act 2015, which replaced mortgage interest relief with a 20% tax credit. Stamp duty is higher on a second property.