What Are Capital Allowances And How Can You Benefit If You Rent Out A Property UK?

What Are Capital Allowances And How Can You Benefit If You Rent Out A Property UK?

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While it’s an obligation to pay taxes to the government, there are various ways in which you can minimise your bill. capital allowances furnished holiday lets are one of them.

What Are Capital Assets and Allowances?

If you own a business, some of the assets you purchase or spend on for your operations can be considered capital assets. These typically refer to relatively expensive items that you’ll use for your business and will provide you benefits in the long run (usually at least a year).

An asset can be counted as a capital asset depending on the nature, scale, and circumstances of a business. For instance, £200 worth of machinery can be considered as such if the business is being single-handedly run by one entrepreneur. But if it’s a multinational firm that owns that, it can’t be counted as a capital asset and, therefore, can’t be claimed as a tax-deductible under capital allowances.

Capital allowances — including capital allowances commercial property — are tax relief for your capital expenditure. Meaning, if you spend money to buy an asset that will be beneficial for your business operations in the long haul, then you can claim a certain amount and reduce that in your total tax bill.

Capital expenditure also covers money you spent on upgrading or maintaining a capital asset.

How Can UK Rental Property Owners Benefit From Capital Allowances

Like how not all assets are considered capital assets, not all capital assets are also qualified for capital allowances. And if you’re a rental property owner in the UK, you have to be aware of certain things for you to maximise this type of tax relief.

The general rule is that these allowances are offset by the so-called Annual Investment Allowance or AIA. This means that if you’re a property business, you can claim your whole capital expenditure up to the AIA threshold during the year. As of January 1, 2021, the AIA is £200,000 per year.

For example, you’ve furnished an unused property to make it a rental one and spent around £100,000 worth of capital expenditure for that. This is below that £200,000 AIA cap. So if your total taxable income for the year is £150,000, you’d only have to pay £50,000 after subtracting the capital allowances commercial property worth £100,000.

If you let residential property and run a furnished holiday lettings business, you can claim items in that property under capital allowances furnished holiday lets. Keep in mind that there are separate rules for holiday lets and long-term property rentals.

If you failed to claim capital allowances in the past years, you can still claim some amount on capital assets that you still use for your rental business.

If you own more than one rental property in the UK, your income, losses, and capital allowances should be added together. If you own one in the UK and another abroad, these figures should be computed separately.

Take note that replacements and repairs you’ve undertaken in your rental properties cannot be claimed under capital allowances. But you can still deduct them as a revenue expense (not as capital spending). Just keep in mind that the replacement or repaired asset is exclusively used by renters and that it’s “wholly and exclusively” used for your property business.

Do you own a furnished holiday let? If yes, you might be qualified to claim capital allowances furnished holiday lets. If you want to find out about capital allowances commercial property, contact us today at Curtis Plumstone Associates.

 

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