Capital allowances on Furnished Holiday Lettings

by Readers Question

11:44 AM, 17th October 2016
About 2 years ago

Capital allowances on Furnished Holiday Lettings

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Capital allowances on Furnished Holiday Lettings

Hi, I would like to clarify something to do with the disposal/cease of an Furnished Holiday Letting (FHL) property business with relation to the Annual Investment Allowance (AIA) I intend to claim at the outset of the business. If I have only one FHL and I’m told that the AIA I can claim would amount to 10-25% of my property purchase price. If this figure ends up being, for example, £50k then I understand the tax on my income will be offset year on year from the £50k, until the whole £50k pot has been used up.holiday let

The issue I don’t understand, even after reading the HMRC documents on writing down allowances and balancing charges, is how things are wrapped up after I want to end the business and sell off the property. I’m worried that the benefit of having a significant capital allowance now will lead to a large tax liability when I end this FHL business/sell the flat. Does anyone have any examples of how this works in reality and, crucially, how I can retain the current tax benefit from this relief without having to eventually pay a ‘charge’ at the end?

Many thanks for your input

Leah



Comments

Neil Patterson

11:50 AM, 17th October 2016
About 2 years ago

Hi Leah,

I am not sure if this is going to assist, but from the .Gov site: https://www.gov.uk/capital-allowances/annual-investment-allowance

When you can claim

You can only claim AIA in the period you bought the item.

From: https://www.gov.uk/work-out-capital-allowances/writing-down-allowances

How to claim

Group the things you’ve bought into ‘pools’ based on the percentage rate they qualify for.

Work out how much you can claim and deduct it from your profits before tax on your tax return.

The amount left in each pool becomes the starting balance for the next accounting period.

The date you bought it is:

when you signed the contract, if payment is due within less than 4 months
when payment’s due, if it’s due more than 4 months later

If you buy something under a hire purchase contract you can claim for the payments you haven’t made yet when you start using the item. You can’t claim on the interest payments.

If your business closes, you can’t claim AIA for items bought in the final accounting period.
If you don’t want to claim the full cost

If you don’t want to claim the full cost, eg you have low profits, you can claim:

writing down allowances instead
part of the cost as AIA and part as writing down allowances

Paul Wood

10:27 AM, 18th October 2016
About 2 years ago

Hi

In simple terms (although nothing is simple!) You can claim AIA on any capital allowance items in the first year of purchase up to the total value of the allowances for that period.

The capital allowances are for items within the FHL that are allowable as used by the FHL business.

If you have recently purchased the building as new then AIA could be valid.
If you have had the property some years then AIA would not be valid unless you have brought new items.

Capital Allowances on FHL are only valid if you have the property available for let for 210 days per annum and is actually let for 105 days.
The allowance can only be offset against profits for the FHL or FHL business.

Want to chat more contact me.

Dinah South

9:29 AM, 23rd October 2016
About 2 years ago

Reply to the comment left by "Paul Wood" at "18/10/2016 - 10:27":

Hi Paul,

Could you also kindly advise, we have recently purchased a FHL and meet the FHL letting criteria. As it is a static caravan it is a depreciating asset. If we decide to sell the FHL can the capital loss be offset against another property to reduce my CGT bill if I sold? We bought from new last year and wondered how we calculate if we wanted to re-invest the loss with say a normal BTL? Any advice would be appreciated. Thank-you.

Paul Wood

22:54 PM, 24th October 2016
About 2 years ago

Hi,

Thanks for your question.
I work on a specialist allowance called capital allowances which are eligable on permanent structures.
Capital gains / losses and capital allowances are two different tax allowances.
Capital Allowances are claimable from eligable buildings inc FHL's, however FHL's have special qualifying criteria in renting out and the allowance is only allowable against the income of that property.
Caravans are current a deep discussion as to eligability as a FHL and I suggest chatting to an experienced accountant within this field.


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