Serviced Accommodation – Does it Qualify for Capital Allowances?

In recent years there has been a steep increase in the purchase of property labelled as “Service Accommodation”. This has also been accompanied by a number of, self proclaimed, experts offering training. Unfortunately the message given in some cases is that running “Serviced Accommodation” is a means of being able to avoid the usual capital allowances restrictions for residential property and other onerous requirements.

The truth is there is no reference specifically to “Serviced Accommodation” within the Capital Allowances Act 2001 and therefore it does not automatically qualify. As a reminder the Capital Allowances Act states that subject to other qualifying conditions, the following may be able to claim capital allowances:-

  • Ordinary Property Businesses
  • Trades
  • Furnished Holiday Lets

In most cases the most relevant of the above for the owners of “Serviced Accommodation” is Furnished Holiday Lets (FHLs). Therefore when we are asked whether “Serviced Accommodation” qualifies for capital allowances we first look to see whether it meets the requirements of an FHL.

What are the Qualifying Requirements for FHLs?

If you want to read these in detail then see our previous blog on this subject. However as long as the Serviced Accommodation operates in the same way as an FHL the main tests will be around the availability for letting and the pattern of letting. Therefore the following minimum requirements need to be met:-

  • the property needs to be available to let for 210 days per annum
  • the property must actually be let for 105 days per annum
  • there must not be a pattern of longer term letting within any financial year. Longer term letting is defined as any period of 31 days or more where the let is to the same person. If the total of these types of lets is 155 days or more in any financial year then the property cannot qualify as an FHL.

In our experience, it is the last bullet point above, which disqualifies many owners of Serviced Accommodation from claiming capital allowances. For many owners of Serviced Accommodation the certainty of long term lets, with a premium for rentals is their goal. However we believe it is not made clear to those who are entering the world of Serviced Accommodation that their property does not automatically qualify for a capital allowances claim.

What Could Go Wrong?

As we can see from the above there is a danger that an owner of “Serviced Accommodation” may mistakenly make a claim for capital allowances. Automatically making a claim for capital allowances without being aware of the facts is definitely a high-risk strategy. One where the legislation, past precedent and case law is not on your side.

If the owner gets it wrong they could be opening up themselves to penalties imposed by HMRC or a future discovery assessment. Therefore we would encourage anyone who is entering this area of property ownership and letting to contact us first for professional guidance.