With the upcoming changes to the tax rules surrounding capital allowances, it's important for Furnished Holiday Let (FHL) owners to take action before 5th April 2025. Making a capital allowance claim now could save you significant amounts in tax and ensure you're not missing out on valuable relief.
What are capital allowances?
Capital allowances let you claim tax relief on certain capital expenditures, such as equipment or machinery used in your property business. These deductions reduce your taxable profits, helping you save on your tax bill.
What's changing?
Under the current system, if a business stops using an asset (like a piece of equipment), its value is entered into the capital allowance "pool." This could result in either a tax charge (if the asset has gained in value) or a tax relief (if it's lost value). However, for FHL businesses, the rules are about to change.
Instead of treating the transition from an FHL to a regular property business as a termination or disposal of assets (like machinery or equipment), the pool of allowances will be transferred over. This means:
- No immediate tax charge: You won't have to account for any gains or losses related to the assets.
- Ongoing tax relief: The written down value of your assets will carry over, allowing you to continue claiming relief through writing down allowances (WDAs) at either 18% or 6%.
Why you should act before April 2025
This is the cut-off date for making capital allowance claims under the current transitional rules. If you act before then, you'll still be able to claim capital allowances on any additions to your business's assets. After this period, the ability to claim capital allowances for new additions will be restricted.
Important to consider:
- Maximise your capital allowance claims: Before the deadline of 5th April 2025, review your FHL's assets and make sure you're claiming all eligible capital allowances. By doing so, you can continue to claim Writing Down Allowances (WDAs) on these items even after the FHL regime ends.
- Consider investing in new assets now: If you plan to upgrade or purchase new equipment or furniture for your FHL, it's best to do so before the cut-off date. Assets bought before April 2025 will still qualify for the more generous capital allowances.
- Plan for future losses: If you've accumulated losses from your FHL business, these can still be carried forward under the new property business rules. This means you can offset them against future profits, not just from your FHL but also from other rental properties you own.
What happens after the deadline?
After 5th April 2025, businesses won't be able to claim capital allowances on new assets added to the business. Instead, they may need to rely on alternative reliefs, such as replacement of domestic items relief for certain assets, but this won't be as beneficial as capital allowances.
Impact on losses
The new rules also affect how losses are treated. In the past, any losses from your FHL business could only be used to offset future profits from the same FHL business. Under the new rules, any losses carried forward will be part of the overall property business and can be used to offset profits from other properties.
What next?
If you would like to know what else will be changing with the abolishment of the FHL tax regime read our past blog on the subject.
If you are a FHL owner or are looking to invest in them and have questions on what you should do over the coming months, feel free to contact us.