AirBnB Furnished Holiday Letting (FHL) and Capital Allowances

 

 

Introduction

Depreciation of fixed assets charged in the accounts is not allowable in computing taxable profits. Instead, the UK government introduced capital allowances which is a form of tax relief that allows businesses which pay tax in the UK to deduct from their taxable profit (before calculating their tax liability), the value of their qualifying capital expenditure on assets such as equipment or buildings.

Capital allowances is a financial benefit designed to incentivise businesses to invest in capital expenditure. In accordance with section 35 of the Capital Allowances Act 2001, Capital allowances is normally only available in respect of non-dwelling-house commercial properties including hotels and furnished holiday lettings (FHL), but not typical rented accommodations. Similarly, a hospital, prison, and nursing homes are not dwelling houses. There are various forms, types and categories of capital allowances. The most common form is the plant and machinery allowances (PMA). PMA provide tax relief on capital assets such as components of a commercial building and business equipment qualifying as plant and machinery.

 

What is FHL?

To qualify as a FHL the property must be:

  • in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway
  • furnished – there must be sufficient furniture provided for normal occupation and visitors must be entitled to use the furniture

Based on the above, most AirBnB would qualify as FHL. The property must be commercially let (owner must intend to make a profit). If the property is let out of season to cover costs but did not make a profit, the letting will still be treated as commercial. A property only qualify as a FHL if it passes all 3 occupancy conditions below:

The pattern of occupation condition:

If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met so the property will not be a FHL for that year.

The availability condition:

The property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year (140 days for the tax year 2011 to 2012 and earlier).

For the tax year 2020 to 2021 the availability condition is satisfied if the person has made the property available for letting as furnished holiday accommodation for at least 210 days in the year even if coronavirus (COVID-19) restrictions prevented the property from being used.

Do not count any days when you’re staying in the property. HMRC does not consider the property to be available for letting while you’re staying there.

The letting condition:

You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (70 days for the tax year 2011 to 2012 and earlier).

 

Interaction with capital allowances

FHLs are treated as a qualifying actiivity for the purposes of claiming capital allowances. FHL businesses are entitled to capital allowances in respect of fixtures and other plant and machinery in the property. It is however worth mentioning that according to HMRC, a person’s second or holiday home or accommodation used for holiday letting is a dwelling-house which is not eligible for capital allowances. A dwelling-house is a building, or a part of a building that its distinctive characteristic is its ability to afford to those who use it the facilities required for day-to-day private domestic existence.

 

Next Steps

In the Spring Budget 2024, the government announced that capital allowances will cease to be avaialble in respect of FHLs from April 2025. It is therefore paramount that eligible businesses and landlords that own AirBnB / FHL properties take advantage of the capital allowances benefit before it is too late.

Capital allowances is a vast topic and there are various forms, types and categories. Capital allowances can be claimed not only by companies, but also partnerships, individuals and overseas investors which carry out qualifying business activities such as a trade, property business, furnished holiday let, etc.

Are you planning to, or have you already incurred any commercial building or large-scale industrial and engineering plant related capital expenditure which may fall under any of the following categories?

  • New construction
  • Refurbishment works
  • Fit out works
  • Buying buildings

Please let us know as we can help you maximise your capital allowances tax cash savings and Boost Your Impact.