Foreign Income 34 - Capital allowances (but not for furnished residential lettings)

You cannot deduct the cost of buying, altering, building, installing or improving 'fixed' assets such as property, equipment or machinery. Nor can you claim depreciation or losses when such assets are disposed of. Instead you can claim capital allowances, which reduce your profits, or increase a loss.

Expenditure incurred on the provision of plant or machinery for use in a dwelling house is not qualifying expenditure for capital allowances for an ordinary property business, an overseas property business or the special leasing of plant or machinery.

There are rules for claiming capital allowances on fixtures in a property that you buy, sell or lease.

From April 2012, if you buy or sell a property that has fixtures, you must agree the part of the purchase price to be attributed to those fixtures with the other party to the sale. You should have a mutual agreement which is usually made by means of a joint election (called a 'section 198' election) which you must tell HMRC about within 2 years of the date of transfer.

From April 2014, if you buy or sell a property the new owner will not be able to claim allowances for fixtures, if the previous owner did not pool their qualifying expenditure on the fixtures.

You cannot claim capital allowances if you're claiming the property income allowance, in box 14.1, or using cash basis. The only exception for those using cash basis, and not claiming the property income allowance, is cars.

More information can be found in Help Sheet 252 - Capital allowances and balancing charges and Claim capital allowances.