Protecting PBSA Returns in a More Selective Market

Why capital allowances should form part of acquisition, development and operational planning

The UK purpose-built student accommodation market remains attractive, but the easy assumptions have gone. Allsop's recent commentary in an article published on the 18^th of December 2025 points to a market becoming more selective and localised, with growing differences between prime and secondary locations. University strength, affordability, competing supply, development viability and operational performance increasingly determine whether an individual scheme works. In that environment, capital allowances will not turn a poor development into a good investment, but they should form part of the numbers used to assess a viable one.

PBSA is not one market

The national PBSA story has often been framed around undersupply. That remains relevant, but it does not describe every university city or every asset. A scheme serving a strong university in a constrained location can present a very different risk profile from one in a market with weaker demand, greater competing supply or rents approaching the limits of affordability.

Allsop has also highlighted the continuing divide between higher-tariff university locations and secondary markets, alongside the pressure that construction costs, finance and achievable rents place on new development. Reduced HMO (Houses in multiple occupation) supply may create additional demand for PBSA in some locations, but that opportunity still needs to be tested at city, university and asset level.

Development and refurbishment

Capital allowances should be considered during feasibility, not simply once the building is operational. A PBSA scheme can contain substantial expenditure on lifts, mechanical and electrical systems, lighting, heating and cooling, ventilation, security, access controls, fire and alarm systems, data infrastructure, laundry equipment and operational areas.

However, PBSA is not a building type where a standard qualifying percentage can sensibly be applied to the total construction cost. Student bedrooms and other areas forming part of a dwelling house are subject to important restrictions. Shared or communal areas cannot automatically be assumed to fall outside those restrictions simply because they sit beyond the bedroom door. The treatment depends on how each part of the scheme is designed and used, how the building services operate, and who has incurred the expenditure.

The same applies to refurbishment and repositioning projects. Reviewing the design information, cost plan, and procurement structure before expenditure is fixed can help establish the likely relief and ensure that the records required for the eventual claim are captured properly. Historic construction and refurbishment expenditure may also warrant a retrospective review where no specialist analysis was undertaken at the time.

A further opportunity is emerging in first generation PBSA. Smaller and regional operators are buying these older assets and improving performance through refurbishment, repositioning, and amenity upgrades.

Typical programmes may include:

• Replacing bedroom and communal-area furniture.
• Modernising kitchens and building services.
• Introducing new access and management technology.
• Improving study and social spaces.
• Undertaking energy-efficiency works.

From a capital allowances perspective, this creates two distinct areas for review. Before completion, the purchaser should establish the allowances position on the existing property, including what the seller has previously claimed and whether a Section 198* election or other documentation is needed to preserve the available allowances. The proposed refurbishment should then be considered early so that qualifying expenditure is identified, the treatment of assets being removed or replaced is addressed, and the evidence required to support the claim is retained. Broad accounting descriptions such as refurbishment or capital expenditure do not determine the tax treatment; the underlying costs must be analysed according to the assets and work involved.

Acquisition due diligence

The capital allowances position should also form part of acquisition tax due diligence. On a direct property purchase, the review should establish the seller's capital allowances history, what expenditure has been pooled, whether the fixed-value requirement has been satisfied and whether a Section 198* election is required. Leaving those questions until after completion can restrict or permanently lose allowances that might otherwise have passed to the buyer.

In SPV (Special purpose vehicle) or property-company acquisition requires a different analysis. The investor is buying the company with its existing capital allowances and tax history, rather than acquiring the property for capital allowances purposes. Due diligence should therefore establish what the company has previously claimed, what remains within its tax pools, whether later capital expenditure has been captured and whether the position is supported by appropriate records.

In both structures, the aim is not merely to identify a possible future claim. It is to understand the tax position being acquired, reflect it appropriately in the investment model, and protect it within the transaction documentation.

Operational capex and NOI

Allsop has drawn attention to the material differences that can arise between operator budgets for the same building. Similar rental assumptions can produce very different net operating income (NOI) figures because operators treat staffing, utilities, maintenance, furniture replacement, technology and ESG expenditure differently.

There is also a tax dimension to that discussion. An item shown as capital expenditure (capex) in an operator's budget does not automatically qualify for capital allowances, while its presentation in the accounts does not determine its tax treatment. Recurring expenditure on refurbishment, furniture replacement, technology, replacement plant and building services, and energy-efficiency measures should therefore be reviewed according to the nature and location of the asset, the work undertaken and the entity that incurred the cost.

For an operationally intensive asset, this should be an ongoing process rather than a one-off exercise. Reviewing each significant replacement or improvement programme reduces the risk of qualifying expenditure being overlooked and provides a consistent tax analysis beneath differing operator budgets. For smaller operators acquiring and repositioning first-generation PBSA, the allowances identified on both the existing property and the refurbishment programme should form part of the acquisition appraisal, capital expenditure strategy and post-tax return analysis.

Tax belongs in the investment model

Capital allowances are one component of the investment decision, not the reason for making it. Their availability and timing depend on entitlement, ownership structure, taxable profits, the nature of the expenditure and the reliefs available to the claimant. Two schemes with the same construction cost can therefore produce very different after-tax outcomes.

Our role can begin with an initial assessment during feasibility or acquisition. We can then review the ownership and contractual structure, help identify the project information that should be retained, revisit the position as expenditure is incurred and prepare and support the resulting capital allowances claim. When an asset or SPV changes hands, we can also help ensure that the existing position is understood and protected.

In a more selective PBSA market, that approach supports more complete investment appraisal. It ensures that legitimate tax relief is identified and evidenced while decisions are being made, rather than considered only after the development, refurbishment or transaction has been completed.

Speak to us

If you are developing, acquiring or investing in PBSA and would like to understand how capital allowances could affect the numbers, please speak to our team. We are happy to become involved at an early stage, before the ownership structure, transaction terms or expenditure are fixed. Index:

Section 198 election: A section 198 election is a joint agreement between the buyer and seller of a commercial property that fixes how much of the purchase price relates to the fixtures in the building. Fixtures here means plant and machinery, such as lifts, heating, lighting and air conditioning. It takes its name from section 198 of the Capital Allowances Act 2001.

Sources

Allsop The Student Housing Market Opportunity Affordability and the Road Ahead 16 July 2026

Allsop PBSA Budgets Why We Are No Longer Comparing Apples with Apples 30 July 2026

Allsop The Evolution of the Student Sector and Changing Levels of HMO Supply 18 December 2025

Technical note The availability and timing of capital allowances depend on the facts, the ownership and operating structure and the legislation in force. Project-specific tax advice should be obtained before relying on any projected benefit.