7 March 2018
For hotel businesses, capital allowances can provide one of the most valuable and efficient methods of reducing income tax or corporation tax liabilities on plant and machinery embedded within their property.
Hotels require substantial investment; the initial capital to acquire the property and then annual capital spend in maintaining it. Careful tax planning can lead to substantial tax savings by way of a capital allowances (tax depreciation) claim.
The type of capital expenditure that may qualify for tax relief for hotels can go well beyond straightforward items such as tables, chairs lifts, heating and cooling systems, etc. Hotels have additional specific trade related plant, such as swimming pools and acoustic insulation, along with other items that contribute to the ambience. This can result in a generous reduction in the tax liability.
Capital allowances tax relief is often overlooked and undervalued – especially on the acquisition price. The “price” paid can essentially be separated into cost of the land, bricks and mortar from the fixtures and fittings that come embedded with the building for tax purposes. Provided the supporting paperwork is correctly executed, considerable tax savings can be achieved from the investment.
Many unwary buyers agree arbitrary elections at the time for nominal amounts (typically £1 a pool) without realising that they are foregoing valuable tax relief. Usually at this stage, advice from accountants is not considered essential and therefore not sought until it is too late.
To secure your benefit for future tax relief, remember to seek advice from your accountant and ensure appropriate action is considered or taken during the initial contract negotiations and due diligence process. We work with a number of solicitors as well as independently with investors in this regard to provide the additional support required.
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