In the ever-evolving landscape of property law and taxation, the case of Hora Tevfik v The Commissioners for Her Majesty Revenue & Customs stands as a pivotal moment. This case, which delves into the complexities of Capital Allowances and Multiple Dwellings Relief, has significant implications for property owners operating Homes with Multiple Occupation (HMOs).
In this comprehensive review, we unpack the intricacies of the case, from the definition of ‘dwelling house’ to the applicability of Plant and Machinery Allowance.
Background
Mr. Hora (the appellant) purchased three properties and operated Home with Multiple Occupation. Mr. Hora then claimed expenses on expenditures on kitchen and living area and common areas like the lobby and stairs. The appellant claimed these areas do not fall as part of a dwelling and that they were communal areas.
The appellant contended the expenditure incurred on shared living spaces such as communal kitchens and living areas and common areas such as lobbies and stairs were not part of the dwelling house and so capital allowance were applicable.
HMRC asserted ‘in an HMO, it is the totality of the property that forms the dwelling house. It is the house as a whole that provides the facilities for day-to-day private domestic existence and hence the house as a whole that is the dwelling house’.
The areas of contention in the trial was whether expenses incurred were for a dwelling house and whether Plant and Machinery Allowance was applicable for the appellant to make a claim
Dwelling Area & Communal Area
HMRC regards communal areas such as lounge areas, private sleeping area, kitchen to be part of a dwelling of an HMO. The first-tier tribunal opposed this interpretation and opined that, ‘while a communal kitchen and lounge are also part of a dwelling-house the common parts of the building such as the common entrance lobby, corridors, stairs or lifts and those parts of the building which do not provide any living facilities would not, comprise a ‘dwelling house’.
FTT however, agreed with HMRC that, ‘dwelling house’ takes it ordinary meaning, a place which provides day to day facilities for domestic existence. An individual bedroom would not afford such facilities. A dwelling would be the bedroom together with shared lounge and communal kitchen.
Regarding capital allowance and allowable investment allowance, the FTT found that, the expenditures was incurred in providing plant and machinery for use in a dwelling house and related to common parts, communal or shared areas or installations in the property.
These expenses are allowable by Section 35(3) of Capital Allowance Act, 2001. However, since the appellant did not provide further information to support his claim under Section 35 (3) of CAA 2001. Since the burden of proof lies with the appellant to establish that expenditure on the properties was qualifying and that such clarification has not been completed. The appellant’s claim was not particularised and without that information to the extent that the claim includes communal area, the claim for plant and machinery did not hold ground.
The Capital Allowance legislation does not grant expenditure if it is incurred in providing plant or machinery for use in a dwelling house. If plant or machinery is provided partly for use in a dwelling-house and partly for other purposes, such expenditure incurred in providing that plant or machinery is to be made for the purpose of a non-dwelling house.
Plant and Machinery Allowance and AIA
The appellant did not qualify for AIA as the allowance applied to expenditure incurred on or after 6 April 2008 and that the appellant’s expenditure was incurred prior to the said date. The appellant did not qualify for the relief.
Current Practice
Claims for plant and machinery allowance in respect of shared parts of houses in multiple occupation (such as hallways, stairs, landing, attics, and basements within the house, are not part of the dwelling house) and are not available for allowance.
Cluster flats or houses in multiple occupation, that provide the facilities necessary for day-to-day private domestic existence are dwelling houses.
