Hedge Tax Mitigation – British landlords in Spain -feedback?

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  • #56052
    Profile photo of Anonymous
    Anonymous
    Participant

    Has anyone dealt with a UK company called Hedge Tax Mitigation?

    They are contacting British owners of property in Spain using contact details obtained from ads at holiday letting websites.

    They say they can get holiday rental landlords substantial tax rebates in the UK using capital allowances (on holiday rentals) that most people don’t claim or even know about. Sounds like a nice idea, but does it work? Anyone know?

    One person they have contacted tells me they claim they can get him more than £40,000 in UK tax rebates. As he says, “it sounds too good to be true.”

    I am told their approach is not without pressure, and of course they charge a fee.

    These days you have to be wary of anyone offering any service whatsoever related to property in Spain.

    Any feedback? By PM please.

  • #102298
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    Hi mark, i know nothing about the company but the website offers an interesting case study. Maybe someone here with more UK tax knowledge can comment:

    A freelance management consultant client bought two properties in Cyprus off plan with the intention of flipping them before completion for capital gain. She was caught out by aggressive building meaning there were too many on the market, followed by the lack of finance and the resulting downturn in the market, meaning she had no choice but to complete on them herself.

    Despite a competitive market she manages to let both of the properties for more than two months in the year (to qualify – the minimum number of days rental achieved must be 70 days).

    The total purchase price for both apartments was £230,000, and we were able to identify Capital Allowances of nearly £60,000. In addition to this, we were able to also identify that the total costs of running the apartment, after mortgage costs, management costs, insurance, etc, meant that she had a further £12,000 she could offset against her UK income from her management consultancy.

    We were able to make a successful claim in 2008/’09 which resulted in all of her Income Tax being repaid, and with the balance running over to reduce the tax she has to pay in January 2011. Given that she had never intended to keep these properties and used her own capital to do so, she is delighted that she has been able to recoup some money in this way.

    The lesson here is that Furnished Holiday Lets attract higher Capital Allowances, and if the rent does not cover the costs of renting the properties, then they can be offset against UK income from whatever source.

  • #102303
    Profile photo of Anonymous
    Anonymous
    Participant

    I had seen a simliar kind of litreture on Easyjet flight magazines.

  • #102310
    Profile photo of zoro
    zoro
    Participant

    This certainly looks dodgy doesn’t it!

    The purpose of Capital Allowances are to encourage Businesses to invest in what are perceived by the UK Government as desireable areas of the UK economy e.g. Research and Development or geographic areas of the UK. One of those allowances is to encourage the conversion of commercial space e.g. storage space, into residential space, e.g. flats above shops.

    The full list is here in the HMRC Technical Pages:
    http://www.hmrc.gov.uk/capital_allowances/investmentschemes.htm#h
    Clicking on the Flat Conversion link gives more details of that one.

    The intention is to alleviate the residential property shortage in the UK. Although it doesn’t explicitly say that foreign property is excluded, it does list the qualifying types of buildings in England and Wales, Scotland and Northern Ireland which seems to be a big hint that it is meant to be only for the UK.

    If their blurb about the success of the Cyrprus property is true then they have either found a gaping loophole or simply submitted a claim which didn’t get investigated by HMRC, which is the case for about 90% of claims since HMRC don’t have the resources to check anything like every claim.

  • #102312
    Profile photo of Anonymous
    Anonymous
    Participant

    Well, I know myself that after you have paid the 24% tax in spain from holiday rentals, (and remember you can deduct certain expenses from this now since the law has changed, but only for the weeks you are physically renting the property), that you can offset what you have paid in spain against your uk tax bill. The expenses you can deduct are you mortgage interest payments, agent fees, electric bill, water bill, etc…BUT only for the exact dates when the property has been rented out for.

  • #102314
    Profile photo of zoro
    zoro
    Participant

    @ethnatkev wrote:

    Well, I know myself that after you have paid the 24% tax in spain from holiday rentals, (and remember you can deduct certain expenses from this now since the law has changed, but only for the weeks you are physically renting the property), that you can offset what you have paid in spain against your uk tax bill. The expenses you can deduct are you mortgage interest payments, agent fees, electric bill, water bill, etc…BUT only for the exact dates when the property has been rented out for.

    Absolutely.

    Offsetting expenses incurred to generate income is perfectly acceptable to HMRC and a normal part of income tax on both domestic and foreign earnings. Capital Allowances however, which are what these people are talking about, are special dispensations under the Capital Allowance Act 2001.

  • #102318
    Profile photo of Anonymous
    Anonymous
    Participant

    Oh, sorry, misread your post. Would be interesting to find out if it is only for the uk?

  • #102322
    Profile photo of Anonymous
    Anonymous
    Participant

    Good work Zoro 😀

    It would be good to get to the bottom of this. They are taking out full page ads in inflight magazines on flights to Spain, offering what looks big rebates so I guess they are getting quite a bit of interest.

    The question is, are they exploiting a grey area? Is it legal?

    Full credit to them if they are exploting a grey area whilst keeping within the law and getting big money back for their clients……if that is what they are doing. ❓

  • #102324
    Profile photo of katy
    katy
    Spectator

    Wouldn’t trust them. I think they are targeting the average owner who owns one property and doesn’t use an accountant. Use a reputable accountant locally and give them the website information.

  • #102330
    Profile photo of zoro
    zoro
    Participant

    Oh well, the pat on the head from Mark has prompted me to dig a little deeper and surprise, surprise; they may be genuine. It would appear that although the government’s intention was to benefit the UK only, the EU stepped in and forced a change. It is this change that Hedge Tax Mitigation seem to be exploiting.

    I found this thread about it on an Accountants forum where they have discussed it in some detail.

    http://www.accountingweb.co.uk/anyanswers/capital-allowances-buy-let-properties-0

    and there is also a link to a Direct Gov page here:

    http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017930

    So Capital Allowance breaks seem to be possible but with lots of conditions and restrictions.

  • #102347
    Profile photo of Anonymous
    Anonymous
    Participant

    HMRC Q&A on this subject here:
    http://www.hmrc.gov.uk/budget2010/fhl-qa-3755.pdf
    http://www.hmrc.gov.uk/budget2010/furn-hol-lets.htm

    I’ve seen the correspondence this company sends out and it all seems serious and credible. A lot of it very technical, and they are keen to deal with your accountant, which is a good sign.

    But what I want to know is has anyone ever successfully claimed a rebate on capital allowances for European holiday lets?

  • #102365
    Profile photo of Anonymous
    Anonymous
    Participant

    Came accross this at the OPP website:

    UK owners of holiday rental properties in the EU could be missing out on substantial tax benefits, and the window of opportunity is closing soon. Capital claims allowances for furnished holiday lettings allow owners of rented holiday homes to claim back approximately a quarter of the value of their properties back as tax, if certain criteria are met.

    However, a survey of 100 rental property owners conducted by Capital Allowance & Tax Recovery Ltd (CAATRL) found that none of them had heard of the ruling, which was introduced in April 2009.

    Robin Raymond, the director CAATRL said: “Most property owners are just not aware of this opportunity. They have nothing to lose as they could be entitled to thousands of pounds in tax rebates. It is not a privilege, it is their right.”

    Now, legislation is due to change, with new rules brought in by the UK Government taking force at the start of the next tax year, 5th April 2011. In future, capital allowance claims can only be made against income from property, whereas at the moment it can be claimed back on an individual’s entire tax liability.

    However, Raymond told OPP that property owners have a little more time to file a claim in practice. He said: “For this tax year the claim must be submitted by the 5th of April, but if you’re doing a self-assessment tax return you have until January 2012, and if you’re doing a reassessment you have until January 2013.”

    Raymond’s company is offering to work with agents who refer clients to them. OPP reported on a similar company. CA Claims, who were offering an average of 800 euros per case referred.

    To qualify for a capital claims allowance the property must have been advertised and available to rent for 140 days in the relevant 12 month period, and must be let for at least 70 days in that year.

  • #102409
    Profile photo of Anonymous
    Anonymous
    Participant

    Does anyone know if you can get your own accountant to deal with this? Or is it just specialized firms? It is just that I rang them and they said that they take a 10% cut from what the capital allowance would be and if it is for example around 100.000euros, you would have to pay them 10.000euros up front. Which I find quite steep to be honest.

  • #102824
    Profile photo of Anonymous
    Anonymous
    Participant

    “It sounds too good to be true.”
    This certainly looks dodgy doesn’t it!
    They have either found a gaping loophole or simply submitted a claim which didn’t get investigated by HMRC
    The question is, are they exploiting a grey area? Is it legal?
    Wouldn’t trust them.

    I came across this forum at the w/e when I was looking to see what the latest was in the world of Furnished Holiday Lets. The above quotes show that there is a good deal of scepticism about on the entitlement to claim capital allowances. As a Chartered Tax Adviser and member of the Association of Taxation Technicians and having worked in tax for 25 years (13 with HMRC) I can put your fears to rest and confirm that there is absolutely nothing illegal or dodgy at all about claiming capital allowances on furnished holiday lets in Europe. It is not even a ‘grey area’.
    So long as the criteria to be treated as a furnished holiday let are met, then capital allowances can be claimed just like any other expense such as mortgage interest or repairs. And if expenses exceed rental income to create a loss, that loss is available to set against other income in the current year or it can be carried back to an earlier year. For most rentals, losses are only available to set against future rental profits.
    The rules for qualifying as a FHL can be viewed here

    http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017930.

    You will see that this is a government website so this should help to alleviate some of the concerns about the ability to claim capital allowances being ‘dodgy’.
    The rules are set to change in April 2011 to make it considerably tougher to qualify as a FHL and from April 2012 the ability to set off losses against other income is also to cease. Details can be viewed here:

    http://www.propertytaxadvisers.co.uk/services/furnished-holiday-lettings-consultation-december-2010.

    So why are FHLs treated differently to the letting of other types of accommodation and why are the rules changing? Essentially, the additional work involved in letting out weekly/fortnightly etc with the need to regularly advertise, change bed linen, cleaning etc was deemed to be much more onerous than other types of letting. Effectively, FHLs were seen to be almost like running a business involving week to week management whereas regular letting involved action every few months and then you could simply forget about it; for most tax purposes FHLs are treated as a trade but most other types of let are treated as investments.
    The rules are set to change for a number of reasons:
    • FHL treatment was only extended to property based in Europe in April 2009 because it was deemed to breach European legislation – cannot have rules in place that operate favourably for those in the UK compared to the rest of Europe.
    • However, this was only a short term measure because the intention was to do away entirely with the special tax treatment of FHLs in April 2010. This was put on hold because of the election and when the Coalition formed the government they said they would consult on this and they have done so.
    • The rules are changing because with the use of letting agents etc it is perceived that there is little difference between many FHLs and regular lets. Going forward it is only properties let out for almost 40% of the year and available for letting for almost 60% of the year that will continue to be treated as FHLs, continuing to receive special tax treatment, albeit not as favourable as it was previously.
    Once again, to give you the comfort of getting it ‘straight from the horse’s mouth’ see HMRC’s technical manual on FHLs

    http://www.hmrc.gov.uk/manuals/pimmanual/pim4105.htm.

    I would point out that this page is not up-to-date as it indicates that properties in Europe do not qualify as FHLs, which of course, they do with effect from April 2009. Unfortunately, this is one of the big let downs of HMRC’s technical guidance – it contains many documents that do not reflect the current situation.
    Hopefully, you are now satisfied that the claiming of capital allowances in FHLs is in no way dodgy. There is no more likelihood of HMRC enquiring into your tax return because of a claim to capital allowances than because of a repair.
    So who should use you to undertake such a survey? A number of providers indicate that they have a 100% success rate and have never had any investigations. Having worked in tax for 25 years I can assure you this means absolutely nothing. I would be impressed if they advised that HMRC had investigated a number of claims and given them the all clear. In most instances, HMRC have six years to open an enquiry into a tax return. The real issue is ‘are they likely to do so’? Having ascertained that claiming capital allowances is 100% legitimate then the next issue is ‘has the correct amount of capital allowances been claimed’?
    The legislation is in the Capital Allowances Act 2001 S.562 (3) and states that the CAs calculation should be on ‘a just and reasonable’ basis. But what may seem just and reasonable to you or me may not seem so to HMRC. And this is where technical guidance is required to clarify the legislation.
    The following extract is taken from the HMRC website quoted above:
    Entitlement to plant and machinery capital allowances on furniture, furnishings, etc in the let property, as well as on plant and machinery used outside the property (such as vans and tools); but there are no capital allowances for the cost of the property itself or the land on which it stands.
    I have highlighted the above point because this is the crux of the amount of capital allowances that can be claimed. It is necessary to apportion costs between the elements of a property qualifying for capital allowances and those that do not. When purchasing a property you are buying three things:
    1. The structure itself – the bricks and mortar (no claim).
    2. The land on which the structure is placed (no claim).
    3. The fixtures and fittings within the structure (CLAIM).
    So how do you apportion the three separate costs that go to make up the purchase price of the property? It is at this point that I would say that it begins to be unreasonable to expect your ‘average’ accountant to be able to handle such matters because the technical guidance is not to be found in HMRC manuals; instead it is in the manuals of the Valuation Office Agency (VOA). Interpreting this guidance and putting into action requires surveying skills and experience beyond the scope of your ‘average’ accountant.
    Please bear in mind that the CAs claim is based on how much the fixtures and fittings were worth when the property was first used as a FHL. So if you had a kitchen, air conditioning, and a bathroom that were deemed to be worth £20,000 (out of a purchase price of £100,000), when first let out (applying the ‘just and reasonable’ legislation supported by the VOA technical guidance) then you would claim £20,000 worth of tax relief in addition to any further capital expenditure that may have been incurred. However, the likelihood is that ‘a like for like’ replacement of a bathroom or kitchen would almost certainly have been dealt with as a repair rather than capital expenditure.
    The moral is that you should seek to let the property out prior to completing any renovations even if it is in a bit of a state (just charge a minimal rent) because this means that you can claim for the fixtures and fittings within the property at the date of first letting whereas, if these are immediately replaced once purchased and never used in the let, no CAs are due on the original purchase price of the property.
    In conclusion, capital allowances can be claimed. With the new rules coming into effect from April 2011 it is suggested that a survey and claim would, potentially, be more beneficial now than in a few years time. Capital allowances in tax returns are a replacement of depreciation in accounts and, as such, may be spread over a number of years. However, for anybody purchasing a property after March 2008 the 100% annual investment allowance (currently up to £100,000 on capital expenditure) means that the full cost could well be available in the 1st year. If, as a result, of such a claim, a rental loss arises this can be set off against other taxable income. If HMRC open an enquiry there is nothing to fear so long as your valuer has claimed not too much capital allowances.
    Professional qualifications you should look out for when considering who to use as a valuer are Chartered Surveyor (RICS), Chartered Tax Adviser (CTA) and/or the Association of Taxation Technicians (ATT). Alternatively, consider those qualified by years of experience.
    Finally, I would like to think that if a property let in Europe meets the FHL criteria this income would be declared on the income from property pages of a UK tax return rather than the foreign pages following the change in rules in April 2009. The benefits of FHL should not be wasted because your accountant is not keeping up-to-date. Unfortunately, this is something I have witnessed.

  • #103209
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    Anonymous
    Participant

    @ethnatkev wrote:

    Does anyone know if you can get your own accountant to deal with this? Or is it just specialized firms? It is just that I rang them and they said that they take a 10% cut from what the capital allowance would be and if it is for example around 100.000euros, you would have to pay them 10.000euros up front. Which I find quite steep to be honest.

    Not many Accountants (or Tax Advisors for that matter) will be experienced in this area but they should be able to find a specialist who could work with them to make the claim. IMO a fair price for dealing with a claim, given the specialism and time required, would be around £1,000 to £2,000 depending on the property and the work the client can do to help. Commercially-minded Accountants could offer payment terms linked with the tax repayment.

    I’m a Chartered Tax Advisor (run my own Accountancy firm) and completed on a place in Spain in 2009/2010 (I registered for these forums prior to then but can’t rememember my old username), have managed to let it for over 10 weeks in its first year and will be making a capital allowances claim for the integral plant and machinery with £thousands of tax refunded thanks to the EU telling the UK government that their Furnished Holiday Let tax rules could not be restricted to just UK property and had to apply to EU property as well. This tax year (to 5 April 2011) is going to be the last year that UK taxpayers can offset a loss (e.g. created by a capital allowances claim) against other UK taxable income as the UK government had to act (last chance to make a claim for 2010/11 is effectively 31 Jan 2013) so as kevmcd says it is a genuine opportunity for owners of qualifying Spanish property to get a valuable refund from HMRC (don’t we need it with the property price crash there?) and they should not delay in getting advice on the subject.

    Typical integral plant/machinery claims are 15% to 30% of the purchase price and it’s possible that all of this can be claimed as a loss in the first year of letting. The UK government didn’t intend for this to happen but due to the lack of knowledge about the subject by the public, and unfortunately by Accountants generally, it’s likely that HMRC won’t have to cough up too much tax for such claims.

  • #103047
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    Anonymous
    Participant

    @ethnatkev wrote:

    Does anyone know if you can get your own accountant to deal with this? Or is it just specialized firms? It is just that I rang them and they said that they take a 10% cut from what the capital allowance would be and if it is for example around 100.000euros, you would have to pay them 10.000euros up front. Which I find quite steep to be honest.

    Not many Accountants (or Tax Advisors for that matter) will be experienced in this area but they should be able to find a specialist who could work with them to make the claim. IMO a fair price for dealing with a claim, given the specialism and time required, would be around £1,000 to £2,000 depending on the property and the work the client can do to help. Commercially-minded Accountants could offer payment terms linked with the tax repayment.

    I’m a Chartered Tax Advisor (run my own Accountancy firm) and completed on a place in Spain in 2009/2010 (I registered for these forums prior to then but can’t rememember my old username), have managed to let it for over 10 weeks in its first year and will be making a capital allowances claim for the integral plant and machinery with £thousands of tax refunded thanks to the EU telling the UK government that their Furnished Holiday Let tax rules could not be restricted to just UK property and had to apply to EU property as well. This tax year (to 5 April 2011) is going to be the last year that UK taxpayers can offset a loss (e.g. created by a capital allowances claim) against other UK taxable income as the UK government had to act (last chance to make a claim for 2010/11 is effectively 31 Jan 2013) so as kevmcd says it is a genuine opportunity for owners of qualifying Spanish property to get a valuable refund from HMRC (don’t we need it with the property price crash there?) and they should not delay in getting advice on the subject.

    Typical integral plant/machinery claims are 15% to 30% of the purchase price and it’s possible that all of this can be claimed as a loss in the first year of letting. The UK government didn’t intend for this to happen but due to the lack of knowledge about the subject by the public, and unfortunately by Accountants generally, it’s likely that HMRC won’t have to cough up too much tax for such claims.

  • #103281
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    Anonymous
    Participant

    I have seen the publicity fron Hedge Tax and other companies too. I have discussed this with my UK account, we bought a property in Spain in 2007, who remains sceptical about the ability to claim a capital allowance.

    Assuming it is legitimate, I share concerns of others on this board that paying a 10% commission up front seems very risky. Also I am confused as to what is the value of the claim, is it purchase price of property or is it of plant etc ? The former being a much higher figure than the latter.

    I have talked to a number of European property owners who simply have never heard of this. So are there ordinary owners of property lets out there who have actually made a successful claim ?

  • #103083
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    Anonymous
    Participant

    I have seen the publicity fron Hedge Tax and other companies too. I have discussed this with my UK account, we bought a property in Spain in 2007, who remains sceptical about the ability to claim a capital allowance.

    Assuming it is legitimate, I share concerns of others on this board that paying a 10% commission up front seems very risky. Also I am confused as to what is the value of the claim, is it purchase price of property or is it of plant etc ? The former being a much higher figure than the latter.

    I have talked to a number of European property owners who simply have never heard of this. So are there ordinary owners of property lets out there who have actually made a successful claim ?

  • #103289
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    Anonymous
    Participant

    @SteveD wrote:

    I have seen the publicity fron Hedge Tax and other companies too. I have discussed this with my UK account, we bought a property in Spain in 2007, who remains sceptical about the ability to claim a capital allowance.

    Assuming it is legitimate, I share concerns of others on this board that paying a 10% commission up front seems very risky. Also I am confused as to what is the value of the claim, is it purchase price of property or is it of plant etc ? The former being a much higher figure than the latter.

    I have talked to a number of European property owners who simply have never heard of this. So are there ordinary owners of property lets out there who have actually made a successful claim ?

    If you don’t like the idea of paying a high fee up front then use a Tax Specialist like us instead. Alternatively your Accountant should be able to discuss your situation with one of the specialist capital allowances firms that offer their services to Accountants or discuss it with a Tax Specialist. Most Accountants who are not Tax Specialists use outside help and if he/she is a Chartered Accountant then he will also be required to go on tax update courses during the year during which this subject should have been mentioned.

    The typical plant and machinery within a property is 10% to 30% of the property cost. The capital allowances claim on the plant and machinery is generally between 25% to 100% of the plant and machinery cost, depending on when the cost was incurred and when the furnished holiday let trade started. There is a general 25% reducing balance allowance but there are also potentially a 40% first year allowance and/or a 100% annual investment allowance. So a property bought for say £250,000 may contain qualifying plant and machinery of say £50,000 and up to £50,000 could be claimed as capital allowances which in turn may be used to reduce other UK income.

    A few points which you should be aware of which aren’t generally mentioned on the web:

    a) The trading loss created by the capital allowances may be offset against income for child tax credit purposes thus also resulting in a refund of tax credits.

    b) If you don’t keep qualifying as a furnished holiday let (e.g you go below the 70 day requirement) then there would be a withdrawal of capital allowances (i.e. some or all of the tax reclaimed may have to be paid back). The 70 day requirement is going to be increased to 105 but it appears that landlords are going to be allowed a year or two to get up to the new level.

    c) If you’ve used the property yourself then this would reduce the capital allowance claim (i.e. there is a private use restriction).

    Some of the typical costs that are part of the building that you can claim capital allowances on (if the property is a qualifying furnished holiday let and thus treated as an asset of a trade) are:

    Fitted kitchen
    Fitted bathroom
    Heating and water system
    Air-conditioning system
    Electrical fittings

    Think of it this way, if you bought your property as a shell and in order to then carry on your trade of short-term rentals you spent money putting in a kitchen, bath, sink, water heating, TV, aircon, furniture etc you should get tax relief on these costs. If a restaurant bought a property and installed a large kitchen, toilets and aircon wouldn’t you (rightly) think they ought to get some tax relief for these costs?

    Still not convinced? Then here is a copy from one of the government manuals:

    ‘Machinery and Plant Allowances

    A taxpayer may be able to claim allowances on capital expenditure incurred “on the provision of machinery or plant” where that machinery or plant belongs to him and is used, or is deemed to be used, for his trade. (Section 22 and Section 24 CAA 1990). This may include the purchase of a building containing plant and machinery.

    There is no definition of ‘machinery or plant’ in the Taxes Acts but the meaning of ‘plant’ has been considered in numerous cases before the Courts. One principle that has emerged from these decisions, is that it is a question of fact and degree as to whether any particular asset is machinery or plant and that this question is to be addressed by considering:

    • the nature of the asset,
    • the nature of the trade in which it is used,
    • the way in which the asset is used in the trade.

    One of the earliest cases in which the meaning of plant was considered, and a case which set out the tests which are still considered to be applicable, was Yarmouth v France (1887) 19QBD 647. Lindley LJ defined plant as including:

    ‘Whatever apparatus is used by a businessman for carrying on his business, not his stock in trade which he buys or makes the sale; but all goods and chattels fixed or moveable, live or dead which he keeps for permanent employment in his business’.

    From this and subsequent cases on the meaning of ‘plant’ it is considered that for an asset to be plant it must:

    • not be stock in trade,
    • not function as the premises in which or on which the trade is carried on, and
    • be used for the purposes of the trade.

    From 30 November 1993, FA 1994 amended CAA 1990 to provide statutory support for the Revenue’s view of what constituted the boundary between plant, and buildings and structures. (Section 83(7) and Schedule AA1 CAA 1990). The Schedule provides that expenditure on buildings and structures is generally not expenditure on machinery and plant. The Schedule includes two Tables and in Column 1 of each Table the items which are specifically excluded from being machinery and plant are set out. Items in Column 2 of the Tables are assets which, following Court decisions and long standing Revenue practice, may be plant, depending upon the facts of the case.

    It should be noted the definition of machinery and plant for Revenue purposes is very different to that used for rating.

    If a taxpayer is entitled to machinery and plant allowances, they may claim a writing down allowance on the qualifying expenditure at the rate of 25% per annum, calculated on a reducing balance basis.’

  • #103089
    Profile photo of Anonymous
    Anonymous
    Participant

    @SteveD wrote:

    I have seen the publicity fron Hedge Tax and other companies too. I have discussed this with my UK account, we bought a property in Spain in 2007, who remains sceptical about the ability to claim a capital allowance.

    Assuming it is legitimate, I share concerns of others on this board that paying a 10% commission up front seems very risky. Also I am confused as to what is the value of the claim, is it purchase price of property or is it of plant etc ? The former being a much higher figure than the latter.

    I have talked to a number of European property owners who simply have never heard of this. So are there ordinary owners of property lets out there who have actually made a successful claim ?

    If you don’t like the idea of paying a high fee up front then use a Tax Specialist like us instead. Alternatively your Accountant should be able to discuss your situation with one of the specialist capital allowances firms that offer their services to Accountants or discuss it with a Tax Specialist. Most Accountants who are not Tax Specialists use outside help and if he/she is a Chartered Accountant then he will also be required to go on tax update courses during the year during which this subject should have been mentioned.

    The typical plant and machinery within a property is 10% to 30% of the property cost. The capital allowances claim on the plant and machinery is generally between 25% to 100% of the plant and machinery cost, depending on when the cost was incurred and when the furnished holiday let trade started. There is a general 25% reducing balance allowance but there are also potentially a 40% first year allowance and/or a 100% annual investment allowance. So a property bought for say £250,000 may contain qualifying plant and machinery of say £50,000 and up to £50,000 could be claimed as capital allowances which in turn may be used to reduce other UK income.

    A few points which you should be aware of which aren’t generally mentioned on the web:

    a) The trading loss created by the capital allowances may be offset against income for child tax credit purposes thus also resulting in a refund of tax credits.

    b) If you don’t keep qualifying as a furnished holiday let (e.g you go below the 70 day requirement) then there would be a withdrawal of capital allowances (i.e. some or all of the tax reclaimed may have to be paid back). The 70 day requirement is going to be increased to 105 but it appears that landlords are going to be allowed a year or two to get up to the new level.

    c) If you’ve used the property yourself then this would reduce the capital allowance claim (i.e. there is a private use restriction).

    Some of the typical costs that are part of the building that you can claim capital allowances on (if the property is a qualifying furnished holiday let and thus treated as an asset of a trade) are:

    Fitted kitchen
    Fitted bathroom
    Heating and water system
    Air-conditioning system
    Electrical fittings

    Think of it this way, if you bought your property as a shell and in order to then carry on your trade of short-term rentals you spent money putting in a kitchen, bath, sink, water heating, TV, aircon, furniture etc you should get tax relief on these costs. If a restaurant bought a property and installed a large kitchen, toilets and aircon wouldn’t you (rightly) think they ought to get some tax relief for these costs?

    Still not convinced? Then here is a copy from one of the government manuals:

    ‘Machinery and Plant Allowances

    A taxpayer may be able to claim allowances on capital expenditure incurred “on the provision of machinery or plant” where that machinery or plant belongs to him and is used, or is deemed to be used, for his trade. (Section 22 and Section 24 CAA 1990). This may include the purchase of a building containing plant and machinery.

    There is no definition of ‘machinery or plant’ in the Taxes Acts but the meaning of ‘plant’ has been considered in numerous cases before the Courts. One principle that has emerged from these decisions, is that it is a question of fact and degree as to whether any particular asset is machinery or plant and that this question is to be addressed by considering:

    • the nature of the asset,
    • the nature of the trade in which it is used,
    • the way in which the asset is used in the trade.

    One of the earliest cases in which the meaning of plant was considered, and a case which set out the tests which are still considered to be applicable, was Yarmouth v France (1887) 19QBD 647. Lindley LJ defined plant as including:

    ‘Whatever apparatus is used by a businessman for carrying on his business, not his stock in trade which he buys or makes the sale; but all goods and chattels fixed or moveable, live or dead which he keeps for permanent employment in his business’.

    From this and subsequent cases on the meaning of ‘plant’ it is considered that for an asset to be plant it must:

    • not be stock in trade,
    • not function as the premises in which or on which the trade is carried on, and
    • be used for the purposes of the trade.

    From 30 November 1993, FA 1994 amended CAA 1990 to provide statutory support for the Revenue’s view of what constituted the boundary between plant, and buildings and structures. (Section 83(7) and Schedule AA1 CAA 1990). The Schedule provides that expenditure on buildings and structures is generally not expenditure on machinery and plant. The Schedule includes two Tables and in Column 1 of each Table the items which are specifically excluded from being machinery and plant are set out. Items in Column 2 of the Tables are assets which, following Court decisions and long standing Revenue practice, may be plant, depending upon the facts of the case.

    It should be noted the definition of machinery and plant for Revenue purposes is very different to that used for rating.

    If a taxpayer is entitled to machinery and plant allowances, they may claim a writing down allowance on the qualifying expenditure at the rate of 25% per annum, calculated on a reducing balance basis.’

  • #105242
    Profile photo of Anonymous
    Anonymous
    Participant

    I hope that anyone who thinks they may have a qualifying Furnished Holiday Let property in Spain (or other EU country) has had their tax situation looked at for a possible Capital Allowances claim on the plant & machinery contained within the property. If not then I’m happy to help with some guidance without charge and can also deal with such capital allowances claims without the high up-front fee that some firms charge. Feel free to send me a message (pm).

  • #107293
    Profile photo of Anonymous
    Anonymous
    Participant

    Following on from above and with 31 January looming I would urge any UK resident taxpayer who thinks their rental property may qualify as a Furnished Holiday Let in Spain (or elsewhere in the EU) to look at these two blog posts and take action if appropriate:

    http://lionsaccountants.co.uk/blog/integral-plant-machinery-furnished-holiday-lets/

    http://lionsaccountants.co.uk/blog/furnished-holiday-lets/

    I am sure there are thousands of people who could claim capital allowances on part of their property cost but they (and their Accountant) are unaware that the claim (and the tax rebate) are available. Some of the clients that we have taken on have also used the opportunity to declare their rental income to HMRC for the first time and instead of having tax to pay have received a nice tax rebate instead.

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