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Capital Allowances – Changes to the Meaning of Dwelling-house

HMRC has announced that the Capital Allowances Manual will be updated with immediate effect to reflect the revised guidance on the meaning of a ‘dwelling-house’ for the purposes of the Capital Allowances Act 2001.

In 2008 HMRC sought comments on certain proposed revisions to guidance in the Capital Allowances Manual (CAM). One of the proposed revisions concerned an update to guidance on the meaning of ‘dwelling-house’ for the purposes of section 35 of the Capital Allowances Act (CAA) 2001. This section provides that expenditure on plant or machinery ‘for use in a dwelling-house’ does not qualify for capital allowances in certain cases, for example, in the case of an ordinary or overseas property business.

As a result of recent advice, HMRC now considers that the meaning of ‘dwelling-house’ for Part 10 (which is the Rent Act/Housing Act meaning) is specific to that Part, and that the term in other Parts of CAA01 takes its ordinary, everyday meaning.

On further reflection, HMRC have concluded that the definition based on the presence of the facilities required for day-to-day private existence is a better everyday description, bearing in mind that the question remains essentially one of fact, so that unusual or controversial cases may still need to be considered in the light of their individual facts and circumstances.

The relevant sections of the CAM, which are being revised to reflect this updated view, will apply in all circumstances in relation to capital expenditure incurred on or after 22 October 2010.

In relation to capital expenditure incurred on or after 29 December 2008 but before 22 October 2010 HMRC will either accept capital allowances claims in returns made in respect of communal areas on the basis of the view as set out in R&C Brief 66/08 or on the basis of the view as previously set out in CA11520 and CA23060.

In relation to capital expenditure incurred before 29 December 2008 claims made in returns for open years and filed before 22 October 2010 relying on R&C Brief 66/08 will also be accepted.

Brief 45/10 is available here.