The answer to the above question is yes Furnished Holiday Lets do attract capital allowances provided they meet the qualifying criteriat:-
- The owner must pay tax in the UK.
- The property must be let for a minimum of 70 days per year and available to let for 140 days per year
- The property must be either in the UK or any other country within the European Economic Area (see list of qualifying countries below)
- Individual lets must not exceed more than 31 days in the year.
- The purchase cost of the property plus redevelopment work must be £250k for us to be able to make a worthwhile claim.
Despite the best efforts of capital allowances companies such as our own to inform the owners of furnished holiday lets that they are able to claim capital allowances on this type of property there are estimated to be hundreds of thousands of individuals who are entitled to make a claim but who have failed to do so. I have talked to numerous owners who just do not believe that they or their accountant could have not been aware of a tax relief of this nature.
For the uninitiated capital allowances can be claimed on the fixtures within in a property such as heating systems, air conditioning, electrical systems and a myriad of other items. On average these items make up 25% of the value of the purchase price of the property plus any major refurbishment costs.
What does this actually all mean for the taxpayer?
Probably the best way of illustrating what this could mean to the owner of a furnished holiday let which meets the qualifying criteria is to provide an example of a potential claim as follows:-
- Property purchased in 2007 for £300k
- Tax payer pays tax in UK at 40%
- Capital Allowances identified at 25% equals £75K
- Tax benefit for 09/10 equals £75k x 20% = £15k x 40% = £6k.
- Tax benefit for 10/11 equals £60k x 20% = £12k x 40% = £4.8k.
Therefore the total benefit for the taxpayer is £10.8k.
Fees in the above example would be no more than £1500 + VAT which are tax deductible in their own right. Even if the taxpayer were in the 20% tax bracket the tax benefit would still amount to £5.4k although fees would remain the same.
There would also be a balance of £7.2k’s worth of capital allowances to be pooled for further tax years but as from April 2011 these can only be used to protect profits from taxation which are generated by the furnished holiday let itself.
Time is running out!
As mentioned above to obtain the full benefit of making a claim for capital allowances details will have to be included as an amendment to the 09/10 tax return which must be filed no later than 31st January 2012. As this is a time when traditionally both accountants and capital allowances claims companies can be very busy we suggest taking action now by contacting us via our website by clicking on the link below.
John Plumridge BA (Hons) MCIPS
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