FHL and roof replacement

Sam_W_5

Hi,

We have an FHL, it was bought just over 4 years ago and has been available for holidays for 3.5 years.  In the New Year we will be having the whole roof replaced, I'm just trying to get my head around what this means for tax.

My current understanding is that because we are like-for-like replacing only part of the asset (the house), this can be claimed as a revenue expense and set directly against FHL profits from this property.  Q1 - am I correct?

It's going to be a fairly expensive job, total cost likely to be equivalent to about 3 years profits from our FHL.  I believe we can keep carrying the loss forward until it has been fully paid off Q2 - again, have I understood correctly?

Q3 is whether I should be looking at this differently i.e. is there a better way to deal with the tax?  I think it's relevant that we're expecting to retain ownership of the FHL for at least the next 20 years, so while CGT may be relevant at some point, it's likely to be in the distant future.

Any responses will be much appreciated, just let me know if you need any more information to answer the q's.

Jeremy535897

The nature of the work to be done defines whether it is income or capital, although there may be difficult cases at the margins. The like for like replacement of a roof 4 years after acquisition is a repair, so it will not increase the capital gains tax base cost. It will be treated as a revenue expense in the year it is paid, assuming you use the cash basis. If there is an overall loss for the year, it is carried forward against future FHL profits until used up. However, the property may not actually qualify as a FHL in the year the work is done. Have a look at this:
https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2022

Sam_W_5

Thanks.  I think we're fine on qualifying as an FHL this year, we're already over the 105 day minimum occupancy and will also meet the 210 day availability condition.

The roof replacement will be like-for-like and we have a surveyors report from when we bought the house saying it was in reasonable condition.  Obviously it hasn't gone from great to in need of replacement in 4 years, but equally we didn't get any significant reduction in purchase cost to allow for poor condition.  I think I'll get formal (written) opinion from an accountant before completing tax returns, but it sounds quite promising.

Grumpy_chap

The important thing on decisions like this is to make a sensible, rational assessment and then stick with it.  

What is not allowed is to decide the costs are income offset now and treat accordingly, but then "remember" at sale time and try to treat as capital.

From what has been said, like for like roof repair / replacement sounds like income offset.