Tax relief on student accommodation
March 18, 2025
Capital allowances are not available on residential properties, but too many advisors believe this extends to and subsequently rules out any sort of claim for tax relief on student accommodation. The following article looks to dispel this myth and shows why this is not the case.
Residential dwelling – A definition
It is essential to differentiate between residential properties and student accommodations. Therefore, we must begin by clearly defining what constitutes a residential property. There is no definition of ‘dwelling-house’ in CAA 2001 and so the term takes its ordinary meaning whereby “its distinctive characteristic is its ability to afford to those who use it the facilities required for day-to-day private domestic existence.” Essentially, any building or part of a building which contains a bedroom, a bathroom, and a kitchen would comprise a dwelling-house and not be subject to capital allowances.
There are some exceptions to this rule for various reasons. For example, a hospital, a prison, a nursing home, or hotel, which are run as a trade and offering services, are not dwelling houses. But these exceptions do not generally apply to student accommodation.
Application to student accommodation
When considering student accommodation HMRC’s Capital Allowances Manual does state:
“An educational establishment that provides on-site accommodation purely for its own students, where, for example, the kitchen and dining facilities are physically separate from the study-bedrooms and may not always be accessible to the students, is probably an institution, rather than a dwelling-house.”
However, most halls of residence will fail to meet this criterion and must therefore be viewed differently.
The key distinction lies in identifying areas of the property that may not qualify as a dwelling-house under the defined criteria. In the context of student accommodation, restrictions apply to individual self-contained cluster flats, as they encompass all essential facilities for private domestic living and are therefore classified as dwelling-houses. However, fixtures located outside these private units, such as those in communal areas, are eligible for capital allowances.
In many student accommodation buildings this could be quite significant given the additional facilities that may be on offer. This includes, but not restricted to, stairwells, corridors, lobbies, reception areas, lounges, laundries, gyms, recreational rooms, breakout rooms, offices, libraries, and any additional kitchens or sanitary facilities.
The qualifying plant typically found in student accommodation includes:
Houses of Multiple Occupancy (HMOs)
It is important to distinguish too between student accommodation and HMOs. In most cases, an HMO will house several individual students each with their own bedrooms, sometimes containing private bathroom facilities in the form of an ensuite or simply a wash basin. However, as these students typically share common areas such as lounges and kitchens, these shared spaces, along with any connecting corridors or stairways, collectively form part of a dwelling-house and therefore the property does not qualify for capital allowances.
Comparisons to traditional commercial properties
As the qualifying expenditure is, in most cases, restricted to the common parts the approximate percentage of the overall cost which will be subject to capital allowances will be typically lower than a fully commercial property, however, depending on the specification and cost of the building the tax savings could still be substantial. For example, a £5Million new build student accommodation could yield allowances of up to £1Million, equating to tax savings of up to £250k.
Next steps
If you or your client have undertaken a student accommodation acquisition or build project that you think may benefit from a professional review and would like to explore this opportunity further or seek clarification, we encourage you to reach out to the experts at Bonham & Brook. Our specialist consultants, with over 20 years of combined experience in capital allowances, are ready to assist you in maximising your tax savings. Call us on 020 3523 9125.
CONTACT US
Bonham & Brook – T. 020 3523 9125
Capital Allowances – E. manthistle@bonhamandbrook.co.uk
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