Although capital allowances are not necessarily a widely talked about subject, you may be more interested than you think after hearing that you might be able to offset your costs on your furnished holiday let, though things are about to change so now is the time to act.
The changes to capital allowances on furnished holiday lettings could see some people missing the opportunity to offset losses potentially worth hundreds of thousands against their rental income.
So what are capital allowances for holiday homes?
In the context of a holiday home capital allowances can include expenditure on:-
- Loose furniture and equipment.
- Air conditioning, heating or ventilation installation,
- Fitted kitchens and bathrooms
- Swimming pools
- Electrical systems (dependant on limitation).
Although the above list seems fairly straight forward it does get a little more complicated as the rate at which this can be written off against tax depends on a number of things, like when the expense took place and the tax year it is claimed in and there are additional considerations for first year allowances and annual investment allowances – with both of these the tax must be claimed within the tax year of expenditure to benefit.
Other qualifying information
The property must be within the UK or a country within the EEA. (For more information on which countries are part of the EEA)
Available on a commercial basis for 140 days of the year (this rises to 210 days from April 2012). Which means that it must be rented out a market rate, meaning no reduced rate for relatives.
The property is actually let for 70 days of the year (this rises to 105 days from April 2012)
Losses made from a furnished home letting business can only set against the income of that business (this change means that after April 2012 only income set against the specific letting business can be offset).
If you are new to furnished home letting you will get a “period of grace” in which you may elect to treat it as continuing to qualify for up to a further two even though it does not achieve 105 letting days in those years.
Another important aspect to consider is you may be entitled to claim up to £50,000.00 of the plant and machinery in the first year under annual investment allowance which was introduced back in April 2008, this was later increased to £100,000.00 for expenditure incurred after April 2009 but after April 2012 will be reduced to £25,000.00.
It is important to use a capital allowance consultant who after liaising with you will be able to offer you the support needed to claim capital allowances for your holiday letting or any other capital allowance concerns.
The final deadline for claiming capital allowances that would qualify for the 2010/11 tax year is 31 January 2013.