Author: Matthew Jeffery, Tax Director
“Would my holiday let qualify for capital allowances?”
Furnished holiday lets (FHLs) are a trading business and as a result are taxed as such. However, if you meet the criteria to be an FHL, HMRC allows you additional tax benefits that are over and above those offered to long-term residential landlords.
There are therefore, some significant tax benefits to trading as a FHL as opposed to a buy-to-let (BTL). One of the main tax benefits is called capital allowances tax relief.
Special rules for Furnished Holiday Lets
Before we talk about the tax implications, we must first establish that the property qualifies as a Furnished Holiday Let for tax purposes.
What qualifies as a FHL?
• Situated in the UK or in the European Economic Area (EEA).
• Furnished – there must be sufficient furniture provided for normal occupation.
• Let commercially with the intent to make a profit.
• Available to let for 210 days (30 weeks) a year.
• Actually let for 105 days (15 weeks) a year.
• Not let to the same person for more than 31 consecutive days.
If this criteria is not met, then income is treated as normal rental income – like a BTL property. Capital allowances cannot be claimed for buy-to-lets, as BTLs are classed by HMRC as an investment, rather than a trading business.
Capital Allowances Explained
What is it?
For holiday let businesses capital allowances is a tax relief on the reduction in value of assets classed for tax purposes as “plant and machinery”. Within a holiday letting property, this would refer to the furniture, fixtures and fittings. Generally, 20-30% of the property price will qualify.
Capital allowances allow the owner of a holiday let to write off the cost of allowable assets over a number of years by offsetting a percentage of the cost against the taxable profit. In some cases, this can lead to tax-free profits for a number of years.
There is no time limit to making the claim, providing the property and the asset is still owned in the tax year the claim is submitted. That means, even if the property was bought many years ago or if it has been sold in the last 2 years ago, a claim can still be made.
If you’ve just set up a new FHL, then you may be able to offset the full amount of certain assets using a specialist relief called Annual Investment Allowances (AIA).
When should you claim?
Capital allowances can be claimed on a new build or conversion of a qualifying FHL property at the end of the tax year on your self-assessment tax return or company accounts.
They can also be claimed on the purchase of an existing FHL property which has not previously claimed capital allowances (or not fully claimed).
What items can be claimed under “plant and machinery” for FHL capital allowances?
Plant and machinery for capital allowances purposes can be categorised as either loose items (things that can be moved to a different property) or fixed items (things that if you turned the property upside down they wouldn’t fall out as they are part of the fabric of the building).
|Furniture; sofa, table & chairs, beds, wardrobes/ draws.|
|Furnishing; curtains, bedding, cushions.|
|White goods; freestanding fridge & freezer.|
|Appliances; microwave, kettle, toaster, TV.|
|Sanitaryware and pipework.|
|Kitchens and bathrooms.|
|Electrical and heating systems.|
|Carpets, flooring and ironmongery.|
|Security and fire systems or alarms.|
Zeal are an independent tax consultancy and the first capital allowances tax and surveying specialists.
The technical advisors at Zeal are members of the Chartered Institute of Taxation and have a wealth of knowledge and experience in specialist tax matters. Zeal find better ways for more businesses to benefit from available tax reliefs, untapped savings and efficient business structures.
As experts in helping owners of holiday lets claim hidden tax relief in their properties, which most have no idea they are entitled to, Zeal could help you unlock thousands of pounds in tax and cash savings.
Zeal offer a free consultation and property survey to assess if you qualify and identify the full value of your claim. There are also no upfront costs and our fee is only payable if your claim is successful.
Get in touch with a member of the team to see if we can help you save tax on your holiday let business!