Capital Allowances on FHL

lolala66

Hello

I purchased a property in December 2021 to become a holiday let. We spent 7 months renovating (it was empty for a number of years and very run down) including new kitchen, 3 new bathrooms, new carpets and flooring throughout and painting every single surface!

We started renting it out as a holiday let in August 2022 and with the bookings we have already had and future bookings, we will make Furnished Holiday Let status before the first year of renting comes around.

I have read many many articles about Capital allowances for FHL and I know I can offset those in my tax return, but I am not clear on a couple of things. If I were to claim the capital allowances against my rental income, I presume that means I cannot then claim them for Capital Gains when we come to sell. We are not entirely sure when we will sell the property, but could be in the next year or 2. Is it better to not offset the capital allowances against the income if we are not planning to keep the property long term?

Many thanks for any help or advice!

[Deleted User]

It’s not a question that, if you have claimed capital allowances against the income, you have lost the opportunity to claim against any future capital gain. The expenditure will either be eligible for capital allowances or it will be eligible to reduce your capital gain.

From what you have briefly described it is difficult to see how any of the expenditure can be set against a potential capital gain. 

Jeremy535897

The first task is to decide whether the items concerned are capital or revenue expenditure. That is a question of fact, not personal preference. A useful starting point (and the links within it) is here:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

If an item is revenue expenditure, deduct it from profits. For an item to qualify as an addition to the capital gains tax base cost of an asset, see:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15180

Certain items may qualify for capital allowances. See: https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim3010

The fact that capital allowances have been claimed on an asset does not mean that the capital gains tax base cost is reduced, but very few assets qualifying for capital allowances will count as an improvement to the property for capital gains tax purposes. Normally they will be separate assets that are just part of the sale. See:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15400