If you’re anything like me, and taxes are brought into conversation, you struggle to keep up with what’s happening? Capital Allowances, although tax related, is something you want to be in the know about, especially if you run a Serviced Accommodation or Holiday Let.
What are Capital Allowances?
Capital Allowances are a form of tax relief that can be claimed on items of plant and machinery 'P&M' used within the Serviced Accommodation or furnished Holiday Let to compensate you for the fact that they will dilapidate over time and eventually need replacing. 'P&M' includes the loose items in your property like furniture and white goods.
You can claim capital allowances on either commercial buildings or serviced accommodation, also known as holiday lets. These buildings contain items of plant and machinery such as lifts, heating systems, air conditioning and sanitary fittings, which may qualify for allowances. The furnished holiday let capital allowances scheme has become very popular to help investors reduce tax.
Does all capital expenditure qualify for capital allowances?
Not all capital expenditure qualifies for capital allowances. The general rule is that the asset must be owned by the company or individual claiming capital allowances. Expenditure on the installation of P&M and demolition costs of a property which is held as a fixed asset (not trading stock) will qualify for capital allowances.
How do I claim capital allowances?
Unfortunately, capital allowances are not given automatically, you will need to claim them in your tax returns. The good news is, there’s no time limit on claiming your capital allowances as long as the assets are still owned and used with your Serviced Accommodation or Holiday Let.
What rates are capital allowances given on plant and machinery?
The rates for capital allowances depend on the type of capital expenditure incurred and the date that it was incurred on.
Example: If you have a qualifying general asset with a value of £200,000 in the first tax year you will claim 18% (£64,000) of allowances and have a balance of £136,000 in the pool to carry forward. In the second year you will claim 18% of the residual balance to give allowances of £29,520, carrying forward £134,480. This is repeated until all the allowances are fully utilised or the asset is sold/no longer in use.
Are there fundamental Capital Allowances rules for landlords?
The main points of capital allowances rules for landlords to remember are:
– The property business/Landlord must own the asset
– The asset must be for general business use and not tied to a particular property
– The tax relief applies to capital spending
– Property business capital allowances apply to long-term rented homes
– Capital allowances can reduce profits or increase losses
– Capital allowances are tied to the property business accounting period
Capital allowances are special tax relief on the tools and equipment landlords’ need to run a property business and typically apply to one-off purchases not the day to day business expenses.
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