How Do I Claim Capital Allowances on a Furnished Holiday Let

At Towerstone Accountants we provide specialist property accountant services for landlords property investors and individuals dealing with property tax and reporting obligations across the UK. This article has been written to explain How do I claim capital allowances on a furnished holiday let in clear practical terms so you understand how the rules apply in real situations. Our aim is to help you make informed decisions avoid costly mistakes and know when professional advice is worthwhile.

Capital allowances are one of the most valuable tax reliefs available to furnished holiday let owners, and yet they are also one of the most misunderstood. I regularly speak to owners who are running successful holiday lets but have never claimed capital allowances properly, or at all, simply because no one explained how the rules work or what qualifies.

In this article I will explain clearly how capital allowances apply to furnished holiday lets in the UK, what you can claim, how to claim it, and the common mistakes I see in practice. I will also cover recent rule changes, record keeping, and how capital allowances fit into the wider tax position of a holiday let business. Everything here reflects current UK tax rules as applied by HM Revenue & Customs and guidance published via GOV.UK, combined with real world experience advising property owners.

Why capital allowances matter so much for furnished holiday lets

Furnished holiday lets have historically been treated more generously than standard residential rentals for tax purposes, and capital allowances are a big part of that.

Capital allowances allow you to deduct the cost of qualifying assets from your taxable profits. Instead of claiming depreciation, which is not allowed for tax, capital allowances give you a statutory way to get tax relief for equipment and furnishings used in your holiday let.

When claimed properly, capital allowances can:

Reduce taxable profits significantly

Create or increase losses

Improve cash flow

Accelerate tax relief into earlier years

For many owners, the tax savings run into thousands of pounds.

What makes a property a furnished holiday let

Before looking at capital allowances, the property must qualify as a furnished holiday let for tax purposes.

To qualify, the property must meet all of the following conditions:

It must be located in the UK or EEA

It must be furnished sufficiently for normal occupation

It must be let commercially

It must be available to let for at least 210 days in the tax year

It must be actually let for at least 105 days in the tax year

Long term lets over 31 days are limited

If these conditions are not met, the property is treated as a standard residential let, and capital allowances are not available in the same way.

Why capital allowances are available for furnished holiday lets

HMRC treats furnished holiday lets as a form of trading business rather than passive investment.

Because of this, FHLs are allowed to claim capital allowances on plant and machinery, in much the same way as a hotel or guest house.

This is a key distinction from standard residential property, where capital allowances on fixtures and furniture are generally not available.

What counts as plant and machinery in a furnished holiday let

This is where many people become confused.

Plant and machinery does not mean industrial equipment. In a holiday let context, it covers a wide range of everyday items.

Common qualifying items include:

Beds, mattresses, and bed frames

Sofas, armchairs, and tables

Wardrobes and storage furniture

Carpets, rugs, and curtains

Blinds and soft furnishings

Fridges, freezers, and dishwashers

Washing machines and tumble dryers

Cookers, hobs, and microwaves

Televisions and audio equipment

Kitchen utensils and small appliances

Lighting that is not part of the building structure

Fire safety equipment

If an item is movable and used in the business, it often qualifies.

Items that do not qualify for capital allowances

Not everything in a furnished holiday let qualifies.

Items that usually do not qualify include:

The cost of the building itself

Land value

Structural walls and foundations

Roofs and windows

Extensions and structural alterations

Decorating costs

Repairs that do not involve new assets

These costs may still be deductible as repairs or capitalised for capital gains purposes, but they are not capital allowances.

Fixtures and fittings, a key area to understand

Fixtures can qualify for capital allowances, but the rules are more technical.

Examples of qualifying fixtures can include:

Integrated kitchen appliances

Bathroom fittings such as showers and sanitary ware

Fixed heating systems

Electrical systems

Hot water systems

However, claiming on fixtures often requires:

Correct identification of qualifying elements

Apportionment of purchase price or build cost

Proper elections if the property was purchased

This is an area where specialist advice is often worthwhile.

Capital allowances on initial purchase vs later purchases

Capital allowances can be claimed in two main situations.

Claiming on items purchased after you start letting

This is the simplest scenario.

If you buy furniture or equipment after the holiday let business has started:

The cost usually qualifies as plant and machinery

The full cost can often be claimed

Relief is given through capital allowances

For example, replacing a sofa or buying a new dishwasher is usually straightforward.

Claiming on items already in the property when you started letting

This is more complex, but often more valuable.

If the property was already furnished when you started operating it as a furnished holiday let, you may still be able to claim capital allowances.

In this case:

You cannot claim the full property purchase price

You must identify the value of qualifying items

A reasonable apportionment is required

This often involves reviewing completion statements, invoices, or estimates.

The Annual Investment Allowance

The Annual Investment Allowance, often shortened to AIA, is central to capital allowance claims.

The AIA allows you to deduct 100 percent of qualifying expenditure in the year of purchase, up to the annual limit.

This means:

No spreading of relief over many years

Immediate tax relief

Simplified claims

Most furnished holiday let owners rely heavily on the AIA.

Writing down allowances

If expenditure exceeds the AIA limit, or if AIA is not available for some reason, writing down allowances apply.

These provide relief over time, rather than immediately.

While less generous, they still provide valuable tax deductions.

How capital allowances are claimed in practice

Capital allowances are claimed through your tax return, not by submitting a separate claim form.

For individuals:

Claims are included in the property pages of the Self Assessment return

Capital allowance figures reduce taxable profits

For companies:

Claims are included in the corporation tax return

Capital allowances reduce trading profits

The calculation must be correct, supported, and consistent.

Record keeping and evidence HMRC expects

HMRC does not require you to submit invoices with your tax return, but you must keep records.

You should retain:

Purchase invoices and receipts

Completion statements

Breakdown of asset costs

Apportionment calculations

Asset lists showing what has been claimed

Records must usually be kept for at least six years.

Poor records are one of the main reasons HMRC challenges capital allowance claims.

Capital allowances and replacement of furniture

In addition to capital allowances, furnished holiday lets can also claim relief when furniture is replaced.

However, the interaction between replacement relief and capital allowances must be handled carefully.

In most cases:

New qualifying assets go through capital allowances

Old assets may be disposed of for tax purposes

Balancing adjustments may apply

This area is often mishandled when owners upgrade properties regularly.

Capital allowances and losses

One of the most powerful aspects of capital allowances is the ability to create or increase losses.

Losses from furnished holiday lets can often be:

Carried forward against future FHL profits

Used strategically in early years

Matched against periods of high expenditure

However, losses cannot usually be offset against other types of income in the same way as trading losses.

Joint ownership and capital allowances

If a furnished holiday let is owned jointly:

Capital allowances are split according to ownership

Each owner claims their share

The total claim must still be reasonable

This is important for married couples and business partners.

Capital allowances and sale of the property

Capital allowances do not disappear when the property is sold.

On disposal:

The assets are treated as sold for tax purposes

Balancing charges or allowances may arise

Previous claims can affect the final tax position

This is another reason why good records are essential from the start.

Common mistakes I see with FHL capital allowances

These issues come up repeatedly in practice:

Not claiming capital allowances at all

Assuming depreciation replaces capital allowances

Claiming on non qualifying items

Overstating values without evidence

Ignoring fixtures and fittings

Failing to adjust on sale

Mixing repair costs with capital items

Most of these mistakes are unintentional, but they can still lead to HMRC challenges.

Interaction with recent rule changes

Tax rules around furnished holiday lets have changed and continue to evolve.

Capital allowances remain available under current rules, but owners should be aware that:

Wider FHL tax advantages are under review

Long term planning is important

Claims should be made correctly while relief is available

Keeping up to date is essential.

When professional advice is worth considering

Capital allowances can be claimed without an accountant, but advice is often worthwhile where:

The property was purchased furnished

Significant refurbishments were carried out

Fixtures and fittings are involved

The claim is large

The property is sold or transferred

Multiple properties are involved

The cost of advice is often small compared to the tax relief achieved.

A practical step by step approach

In simple terms, claiming capital allowances on a furnished holiday let involves:

Confirming the property qualifies as an FHL

Identifying qualifying plant and machinery

Valuing those items reasonably

Applying the Annual Investment Allowance

Including the claim in your tax return

Keeping proper records

Approached methodically, it is manageable and very worthwhile.

Final thoughts on capital allowances for furnished holiday lets

Capital allowances are one of the biggest tax advantages available to furnished holiday let owners, but only if they are claimed properly. Too many owners focus on rental income and overlook the tax relief available on what they have already spent.

Claiming capital allowances is not about pushing boundaries, it is about applying the rules as they are written and making sure you do not pay more tax than necessary. With good records, a clear understanding of what qualifies, and proper planning, capital allowances can significantly improve the profitability of a furnished holiday let over the long term.

If you are unsure whether you have claimed everything you are entitled to, or if you have never reviewed capital allowances on your holiday let, that review alone can often uncover relief you did not realise you were missing.

You may also find our guidance on How do I pay tax on Airbnb or holiday lets and What counts as a furnished holiday let for HMRC useful when exploring related property tax questions. For a broader overview of property tax reporting and planning topics you can visit our property hub which brings all related guidance together.