How Do I Claim Capital Allowances on a Furnished Holiday Let

What Are Capital Allowances

Capital allowances are a type of tax relief that lets you claim back part of the cost of assets you buy for your business. Instead of deducting the cost as an immediate expense, you spread it over several years to reflect the asset’s use and depreciation.

For furnished holiday lets, these allowances apply to items used for business purposes, such as furniture, appliances, and equipment in your property. Claiming capital allowances can significantly reduce your taxable profit and therefore your income tax or corporation tax liability.

Why Furnished Holiday Lets Qualify

A furnished holiday let is treated differently from a normal residential rental. HMRC considers an FHL a trading business rather than an investment. This means it qualifies for capital allowances in the same way that other businesses do.

To qualify as an FHL, your property must meet specific conditions:

• It must be furnished so guests can use it immediately.

• It must be available for letting at least 210 days per year.

• It must be actually let to the public for at least 105 days per year.

• It must not be occupied by the same person for more than 31 consecutive days on a long-term basis.

If your property meets these rules, you can claim capital allowances on eligible items used in your furnished holiday let.

What You Can Claim Capital Allowances On

You can claim capital allowances on most assets that are necessary for running and maintaining your furnished holiday let. Common qualifying items include:

• Furniture such as beds, wardrobes, sofas, and dining tables.

• Kitchen appliances including fridges, cookers, and dishwashers.

• Electrical equipment like TVs, lamps, and Wi-Fi routers.

• Fixtures and fittings such as carpets, curtains, and light fittings.

• Outdoor equipment such as garden furniture or barbecues for guest use.

• Office or admin equipment used to manage bookings, like a computer or printer.

You may also be able to claim allowances on building fixtures, such as central heating systems, water pipes, and electrical wiring, if they were purchased as part of fitting out the property.

What You Cannot Claim

You cannot claim capital allowances on the property’s main structure or any extensions, such as the cost of walls, roofs, or general building work. These are considered capital improvements, which may instead qualify for relief under Capital Gains Tax rules when you sell the property.

You also cannot claim capital allowances on assets that are purely for personal use or not related to the business side of the holiday let.

How to Claim Capital Allowances

To claim capital allowances on a furnished holiday let, you must:

1. Identify Qualifying Items: List all eligible assets purchased for the property, separating them from other expenses such as repairs or maintenance.

2. Keep Proof of Purchase: Retain receipts, invoices, or bank statements showing the cost of each item.

3. Calculate the Allowance: For most items, you can claim the Annual Investment Allowance (AIA), which allows you to deduct the full cost of qualifying assets up to a limit of £1 million per tax year.

4. Add to Your Tax Return: Include the claim in your Self Assessment tax return (or Corporation Tax return if you trade through a company). The total is entered in the “capital allowances” section.

5. Carry Forward Any Unused Allowances: If you spend more than the annual allowance, the balance can usually be carried forward to future years.

Your accountant can help ensure these figures are entered correctly and that you claim the maximum relief available.

Example of a Capital Allowance Claim

Suppose you buy a furnished holiday property and spend the following:

• £3,000 on furniture and beds.

• £2,500 on kitchen appliances.

• £1,500 on heating and lighting upgrades.

• £1,000 on office equipment for managing bookings.

The total eligible spend is £8,000. Under the Annual Investment Allowance, you can deduct the entire £8,000 from your rental income for the tax year, reducing your taxable profit by the same amount.

If your taxable income before the deduction was £30,000, you will now only pay tax on £22,000, creating significant savings.

Pooled Allowances for Ongoing Purchases

If you regularly replace or add items to your furnished holiday let, you can include them in a pool of assets. Each year, you claim a percentage of the remaining balance, known as the Writing Down Allowance (WDA).

For most plant and machinery, the WDA rate is 18 percent, while special rate assets (like integral building fixtures) qualify for 6 percent. This allows you to spread relief over several years rather than claiming it all upfront.

Selling or Disposing of Assets

If you sell or replace an item you previously claimed capital allowances for, you may need to adjust your claim. HMRC requires you to add back the proceeds (or market value) of the item sold into your capital allowances pool. This process ensures you only receive tax relief on the net cost of assets still used in the business.

For example, if you replace a £1,000 cooker with a new one, and sell the old one for £200, you would only claim allowances on the £800 net cost.

Claiming Capital Allowances on Refurbishment Costs

If you refurbish your property to maintain its condition or meet guest expectations, many of those costs qualify for capital allowances. Examples include installing new lighting, re-plumbing, or upgrading heating systems.

However, if the refurbishment significantly improves or extends the property (for instance, adding a new bathroom or expanding the building), those costs are considered capital improvements and not eligible for immediate allowances.

Your accountant can help you separate repair costs (which can be claimed as expenses) from capital improvements (which may qualify for allowances or future CGT relief).

Record Keeping for Capital Allowance Claims

HMRC expects you to keep clear records supporting your claims. You should maintain:

• Receipts and invoices for all assets purchased.

• Details of when and how each item was used.

• Calculations showing how allowances were applied.

• Copies of your tax returns showing claims made.

Records must be kept for at least five years after the submission deadline for Self Assessment. For companies, records should be retained for six years after the end of the accounting period.

How an Accountant Can Help

An accountant experienced in furnished holiday lets can make claiming capital allowances much easier by:

• Identifying all qualifying assets and ensuring nothing is missed.

• Separating repairs and maintenance from capital expenditure correctly.

• Calculating the maximum claim under AIA or Writing Down Allowances.

• Including the figures accurately in your tax return.

• Advising on long-term planning for upgrades and replacements.

Professional advice ensures your claim is accurate, compliant, and maximises the tax relief available to you.

Summary

If you operate a furnished holiday let that meets HMRC’s qualifying criteria, you can claim capital allowances on items such as furniture, fixtures, and equipment used in the property. These allowances reduce your taxable profit, helping to lower your income or corporation tax bill.

You cannot claim for the building itself or major extensions, but most practical purchases related to guest use will qualify. Keeping detailed records and working with an accountant ensures you claim the correct amounts and make full use of this valuable tax relief.