Expenditure incurred on the provision of plant and machinery in residential property should qualify for capital allowances where:

• Expenditure is incurred wholly and exclusively in respect of a residential property used solely as a dwelling, and
• That furnished dwelling is provided for renting or letting on bona fide commercial terms in the open market.

In order for a landlord to be entitled to claim capital allowances on expenditure incurred on the provision of plant and machinery in respect of the letting of commercial property, the landlord must bear the burden of wear and tear. This can be a complex area and, based on case law, relies largely on whether the landlord should bear the burden for the ultimate replacement of the plant and machinery. Reference should be made to the lease agreement and other legal and technical documents in order to determine whether the burden of wear and tear lies with the landlord. To the extent it does, the landlord shall be entitled to claim the capital allowances available, provided also it makes a claim to the Revenue Commissioners within 24 months after the end of the relevant chargeable period and the plant and machinery were in use for the purposes of a trade carried on by the landlord.

In contrast, the question concerning the burden of wear and tear in respect of the letting of residential property does not apply and, therefore, the entitlement is more clear-cut for landlords renting residential property. So, provided expenditure is incurred wholly and exclusively in respect of residential property used solely as a dwelling and the furnished dwelling is provided for renting on bona fide commercial terms in the open market, there should be no impediment on the availability of capital allowances on the cost of qualifying plant and machinery to a landlord.

Capital allowances on the cost of qualifying plant and machinery are claimed at 12.5% per annum over eight years against the rental income arising from the property. The cost of the plant and machinery contained within apartment buildings can be considerable. Where a property is sold, the cost attributable to plant and machinery may be based on an apportionment of the purchase price of the completed development, thus potentially providing the landlord with very significant cash tax savings over a period of time. This can increase the viability for landlords renting large-scale residential apartments especially because VAT on costs incurred tends to be irrecoverable.

Shane Wallace and Steven Gardiner head our dedicated tax depreciation team comprising chartered quantity surveyors and tax professionals who have the skills and experience to ensure that claims are optimised to potentially yield significant tax/cash savings.