What can now be claimed as a deduction from furnished holiday let income?
Furnished holiday lettings (FHL) is being reclassified from a business to a rental activity from 6 April 2010 and many tax reliefs will be lost but what deductions will be available against rental income?
The original cost of installing these fixtures
The extra cost of replacing a fixture with an improved version; for example where a worn out basic cheap bathroom suite is replaced with an expensive high quality suite, the deduction is restricted to the cost of replacing like with like.
These are not available in respect of plant and machinery in a dwellinghouse which is let. As furnished holiday let activities will be classed as normal lettings from 6 April 2010, no capital allowances claim in respect of expenditure incurred on or after 6 April 2010 can be made. However, if there is a balance remaining in the capital allowances pool from the furnished holiday letting business which commenced before this date, writing down allowances will be available on this balance in the future.
Wear and tear allowance
As furnished holiday lettings are to be reclassified as a rental activity, a 10% wear and tear allowance will be available. This allowance is in addition to the residual capital allowances mentioned above. The 10% wear and tear allowance is only designed to provide a measure of relief for the depreciation of plant and machinery within a residential property. It is calculated by taking 10% of the rent received less charges and services normally borne by a tenant but which are in fact borne by the taxpayer e.g. council tax, water rates etc. The wear and tear deduction is only due if furnished accommodation is genuinely provided. A furnished property is one that is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and other furnishings, cookers etc. No deduction is available if the accommodation is not furnished or only partly furnished.
In addition to the 10% wear and tear allowance, a taxpayer can also deduct the net cost of renewing or repairing fixtures that are an integral part of the building. The net cost means the cost of the replacement, less any amount received for the old items. Fixtures integral to the building are those that are not normally removed by either tenant or owner if the property is vacated or sold. For example baths, washbasins, toilets, central heating installations etc. Expenditure on renewing such items is normally a revenue repair to the building. However, the taxpayer cannot deduct:
Cost of installation means:
The cost of installing the assets for the first time in a new property or
The cost of replacing worn out assets in an old property which has been bought to let or
Which you are converting to let.
Landlord's energy saving allowance
There is a tax allowance of £1,500 per property in respect of certain energy saving expenditure (such as insulation) which will now be available on furnished holiday letting properties.
Other expenses are deductible where they are wholly and exclusively for the purposes of the rental business. In practice expenses which are partly for the business will be allowed e.g. a proportion of motor expenses. Other deductible expenses will include:
Provision of services
For further information on any of the above contact Alan Taylor, Campbell Dallas LLP on 01738 441888 or
Please mention Which Cottage as a useful referral point.
17th March 2010