Effective from 6 April 2020
Method A: profits are calculated in the same way as for any property business. Total gross
receipts are added together and allowable expenses are deducted appropriately.
Method B: profits are calculated by taking gross receipts and deducting the exemption limit.
When this method is used the individual cannot claim any other expenses.
Once method B has been chosen it continues to apply unless the individual informs HMRC,
within the time limits, that they would like the first method to apply again. For example, when the
taxable profit for a particular year is less under method A or where expenses are more than the
rents, so there is a loss.
Example where method B is better
Mrs F lets out a room in her own home. Nobody else lets a room in the house. Her gross
receipts for the year are £8,400 with expenses of £1,000, resulting in an actual profit of £7,400.
She is not exempt from tax because her gross receipts exceed the exemption limit of £7,500.
The excess of her receipts over £7,500 is £900 (£8,400 less £7,500).
• Using method A, she pays tax on her actual profit of £7,400
• Using method B, she pays tax on the profit of £900 above the exemption limit.
In Mrs F's case, method B is better and she elects for it. For further guidance see PIM4030.
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22. If capital allowances have been claimed is the expenditure qualifying?
Capital allowances may be available on qualifying expenditure incurred on plant and machinery
but this depends on the type of property income. They are not generally available where the
income is from residential property. They may be available in respect of furnished holiday
lettings and commercial property.
Review the type of property income and ensure that capital allowances are not claimed on plant
and machinery in a dwelling house that is used in an ordinary or an overseas property business.
Expenditure incurred on the provision of plant or machinery for use in a dwelling house does not
qualify for capital allowances for an ordinary or an overseas property business. Consideration
should be given to expenditure on plant and machinery in common parts of a building (for
example the stairs and lifts) which contains two or more dwelling houses. This may qualify for
capital allowances. For further guidance see CA23060.
Expenditure on plant and machinery for use in properties that are not dwelling houses (for
example commercial properties) may qualify for plant and machinery allowances. Expenditure
on plant and machinery may also be claimed where the property is a furnished holiday let - see
When the purchaser of a property claims capital allowances on the fixtures acquired with the
property, it is important they establish the capital allowances position of the vendor as this will
have a bearing on the allowances the buyer can claim. Where a fixture is acquired on or after 6
April 2012 the seller and purchaser may need to use one of three procedures to fix the value of
the fixtures (normally within 2 years of the date of sale). In the vast majority of cases the
procedure will be for both parties to the sale to make a s198 election. For further guidance see
the section of the capital allowances manual that covers fixtures CA26000+.
For general information on capital allowances and balancing charges see Helpsheet 252.
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