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Where Taxpayers and Advisers Meet

Capital allowance on FHL cash basis

etf
Posts:1279
Joined:Mon Nov 02, 2009 5:25 pm
Capital allowance on FHL cash basis

Postby etf » Thu Jun 04, 2020 3:12 pm

The following response can be found on HMRC's Income from property forum:

I believe that capital allowances are not relevant for FHL tax calculations when using the Cash Basis (except cars etc)



However some documentation (may just be out of date) eg PIM 4140 say things like:



"FHLs are treated as a trade for the purposes of giving capital allowances. FHL businesses are entitled to capital allowances on the furniture, white goods, etc. within the property"



Under the new cash basis do we simply account for the above types of capital allowances as revenue expenses instead?



The guidance at PIM4140 is still in date.



Using the cash basis does not affect your entitlement to claim Capital Allowances.



Replacement of items of furniture, appliances etc. with a life span of over 2 years or more, can still be claimed as Capital Allowances, but the replacement of smaller items, such as kitchenware etc. can be claimed as a revenue expense under 'other allowable property expenses'.


The above response appears to be at odds with the following HMRC advice from another source (PIM1092). Is there a conflict here?


However, the special rules for capital expenditure differ between GAAP and cash basis. When calculating profits of a furnished holiday let using GAAP, capital allowances can be claimed for capital expenditure on plant and machinery (e.g. furniture). When the cash basis is used, the full amount of capital expenditure can be deducted from the profits of the tax year when the expenditure is actually paid.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Capital allowance on FHL cash basis

Postby maths » Thu Jun 04, 2020 4:11 pm

Definitely not my area of operation. For what it's worth I had understood that where the cash basis is used there is a specific list of capital expenditure in respect of which capital allowances do not apply [ITTOIA 2005 ss 33 and 33A]; post 5.4.17.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Capital allowance on FHL cash basis

Postby bd6759 » Thu Jun 04, 2020 5:14 pm

The text in red is wrong. But that shouldn’t surprise you.

etf
Posts:1279
Joined:Mon Nov 02, 2009 5:25 pm

Re: Capital allowance on FHL cash basis

Postby etf » Thu Jun 04, 2020 6:20 pm

Thanks both for the confirmation.

If this were my website, I'd open a new section along the lines of "is this dodgy HMRC forum advice?" Not in a malicious way, but in an attempt to create synergy between the two forums. Hopefully any dodgy HMRC answers would then get corrected/or HMRC could advise where this forum has misread a situation.

Alternatively, we could charge HMRC a £1,600 penalty on the grounds that it does not have a reasonable excuse for supplying the dodgy advice given the resources at its disposal and on appeal some judge in an ivory tower could confirm our penalty is correct because tax is so bloody simple.

I know which option I'd prefer.

etf
Posts:1279
Joined:Mon Nov 02, 2009 5:25 pm

Re: Capital allowance on FHL cash basis

Postby etf » Mon Jun 08, 2020 12:52 pm

As a follow up to my initial post, I found the following further HMRC forum response which supports the analysis of Maths and bd6759.

Can I claim capital allowances (for furniture) on FHL when using cash basis for tax return? (youtube clip sugested I could not). And is there guidance on what or how much I can update furnishings and kitchen utensils etc each year? And bedding, linen etc? Thank you
Posted 6 months ago by HMRC Admin 3

Hi,

Thanks for your question.

You cannot claim capital allowances if using the cash basis.

Please see the helpsheet regarding furnished holiday lettings:

HS253 Furnished holiday lettings (2019)

Please see the guidance on income from property for the replacement of domestic items. The guidance does not give a specific details of how much you can update each year. It does explain how much you can claim in respect of like for like replacement or if the replacement is an improvement.

You need to review the section on Replacement of Domestic items:

Property Income Manual 3210

Income Tax when you let property: work out your rental income - Contents





Posted 5 months ago by TKing

Please can you clarify your answer on Linen replacement (when necessary) in FHL - can I claim it under box 6 [Rent paid, repairs,insurance and cost of services provided]? Thank you

Posted 5 months ago by HMRC Admin 3

Hi,

Thank you for your question.

The replacement of Linen can be claimed as a Revenue Expenses and claimed in box 9.

Further guidance can be found under:

Business Income Manual 42050


HMRC's response suggests the replacement of domestic items for a FHL is available, but when I looked at one of the suggested links I found the following (my bold):

Conditions for relief
In order for relief to be given, 4 conditions must be met:

Condition A – the individual or company looking to claim the relief must carry on a property business that includes the letting of a dwelling-house(s).

Condition B – an old domestic item that has been provided for use in the dwelling-house is replaced with the purchase of a new domestic item. The new item must be provided for the exclusive use of the lessee in that dwelling-house and the old item must no longer be available for use by the lessee.

Condition C – The expenditure on the new item must not prohibited by the wholly and exclusive rule (see BIM37000) but would otherwise be prohibited by the capital expenditure rule (see BIM35000).

Condition D – Capital Allowances must not have been claimed in respect of the expenditure on the new domestic item.

If the 4 conditions are met, then a deduction for the expenditure on the new item can be claimed.

However, a deduction is not allowed if:

The dwelling-house in question is, in full or part, a furnished holiday letting


Rent-a-Room receipts have been received in respect of the dwelling-house in question and Rent-a-Room relief has been claimed in relation to those receipts.


However, I then found the following text which supports a tax deduction can be claimed for capital expenditure of a FHL under the cash basis:

Furnished Holiday Lettings
The rules for furnished holiday lettings (see PIM4100 onwards) apply when using the cash basis as when using GAAP.

However, the special rules for capital expenditure differ between GAAP and cash basis. When calculating profits of a furnished holiday let using GAAP, capital allowances can be claimed for capital expenditure on plant and machinery (e.g. furniture). When the cash basis is used, the full amount of capital expenditure can be deducted from the profits of the tax year when the expenditure is actually paid.


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