What are Bed & Breakfast Capital Allowances?
Money you spend on purchasing, building, or renovating your Bed & Breakfast with an enduring benefit for the trade you are conducting i.e. operating as a Guest House is an expenditure that allows your business to operate.
This expenditure is a business expense, meaning it is subject to tax relief, which in this instance is known as Capital Allowances.
Capital Allowances allow you to submit a claim to HMRC to lower your tax bill going forward (and possibly seek a tax refund if you are in profit for previous years) based on the capital expenditure you made towards the business property i.e. your Bed & Breakfast.
How do Bed & Breakfast Capital Allowances work?
As a Bed & Breakfast owner you will live in, and run your Guest House with the purpose of providing short term accommodation to guests at a cost. This means that a portion of your Bed & Breakfast will be used for the business, and a portion for your own home.
Therefore only the portion that is being used to help the business run can count towards your Capital Allowance tax relief on the property.
But what does this actually mean for you, the Bed & Breakfast owner?
When you purchased, built, or renovated your property all those fixtures and integral features within your property can now be claimed under Capital Allowances. This means everything from:
- electrical systems
- heating systems
- hot & cold water systems
- kitchen equipment
- sanitary ware
Many other assets hidden within the fabric of the building may be claimed under Capital Allowances to provide you with tax relief.
What Happens if Tax Relief has already been Claimed on a Bed & Breakfast?
While it is possible that you have made a sufficient Capital Allowances claim for all of the identifiable items within your Bed & Breakfast, it’s not likely.
And even if you have, if the claim was made before 2008, or you have since refurbished any part of your property then you can still make a claim today!
What is more likely however is that when you purchased your Bed & Breakfast your accountant may have valued what are termed as ‘loose chattels’ such as furniture and carpets for tax relief purchases. But this would account for a small percentage of what may be claimed. So the good news it, it is very likely you are within the 99% of Bed & Breakfast owners that can still make a claim, even if you purchased the property years ago.
Remember, Capital Allowances are a niche area of accountancy. No one accountant can be expected to know every facet of accountancy, just as no doctor can be expected to know everything about medicine which is why we have GPs, and then specialists for each area.
How do Bed & Breakfast Capital Allowances break down?
To understand what this actually means for you, it is typical for between 30% and 40% of a Bed & Breakfast’s purchase price to be claimable under Capital Allowances with HMRC. So if you spent £300,000 purchasing your property, this could result in around £100,000 of Capital Allowances being identified as claimable assets to make a claim with HMRC for tax relief on your behalf.
This level of Capital Allowances will then be calculated against your marginal tax rate to provide you with the tax relief you are owed. So if you currently pay 20% tax, then you could be seeing tax relief in the region of £20,000 from the above scenario, and even more if you are a higher rate tax payer!
What is the Law around Capital Allowances?
Capital Allowance legislation is traceable back to the 1870’s but the current legislation is the Capital Allowances Act 2001 (CAA2001) which is amended annually by the Government of the day. Meaning Capital Allowances are a tax relief enshrined in statute.
Under section 198 of the CAA2001 (https://www.legislation.gov.uk/ukpga/2001/2/section/198) if you are eligible to make a claim for Capital Allowances it is your duty to do so.
This is particularly important for Bed & Breakfast owners looking to sell their properties because if you don’t make a claim, and the next owner does want to, they won’t be able to, and you could be liable.
What to do now?
Engage Commercial Properties Tax for no obligation, Free Audit / Review of your property to determine if you can make a Bed & Breakfast Capital Allowances claim.