In this case study, Sam Parker-Hully (Capital Allowances Director) sets out a typical capital allowance claim on a furnished holiday let, exploring what can be claimed and how the relief will differ before and after the Furnished Holiday Let tax regime is abolished in April.
What are capital allowances and what are furnished holiday lets?
As set out in our article from August, the Furnished Holiday Let (“FHL”) tax regime is going to be abolished in April 2025, with affected properties then folded into a general property business instead of being treated as a separate activity.
Capital allowances are a form of generous tax relief, enabling deductions from taxable profits (and therefore a smaller tax bill) for expenditure on certain types of assets.
Capital allowances are available for FHL properties, but not for other residential rental properties. Any allowances claimed now can be relieved against all property income moving forwards, but the abolition means this is the last chance to claim them.
Case study: a capital allowances claim on a furnished holiday let
Mrs Holiday (a fictional person for use in this example) acquired a residential property from a private occupant late in the 2023/2024 tax year for £750,000. She then spent £500,000 renovating the property to turn it into an attractive place to stay for holidaymakers during the 2024/2025 tax year. This renovation included:
- An extension
- New carpets
- Redecoration work
- A new kitchen and bathroom
- New furniture
- Building work
- Minor electrical work
- Landscaping works to the garden.
Towards the end of that tax year, the property was let to the public for the first time, and Mrs Holiday was able to meet the letting conditions for the 12 months starting from that first day of letting (the property was available to be let for at least 210 days, the property was let by the public for at least 105 days, and lets of 31 days or more did not make up 155 days), which let her treat the property as an FHL for tax purposes. There was no private use of the property.
Mrs Holiday has also owned several profitable long term rental properties for a number of years.
The taxable profits/expected taxable profits (before capital allowances) made on each property were as follows:
| Tax year | Taxable profit on FHL (£) | Taxable profit on long term rental properties (£) |
| 2024 / 2025 | 5,000 | 70,000 |
| 2025 / 2026 | 15,000 | 70,000 |
| 2026 / 2027 | 25,000 | 70,000 |
| 2027 / 2028 | 25,000 | 70,000 |
| 2028 / 2029 | 25,000 | 70,000 |
The majority of Mrs Holiday’s taxable income falls into the higher rate band of 40%.
What capital allowances can be claimed?
Mrs Holiday is able to claim capital allowances on qualifying assets that were acquired as part of both the original property acquisition (only in respect of assets that are still in existence at the time she started using the property as a FHL) and the subsequent renovation works.
As no cost information exists for property acquisitions (with instead just one figure being paid for the property as a whole), a detailed cost estimation exercise needed to be undertaken by a specialist capital allowances advisor in order to attribute a cost to each asset within the property.
This detailed analysis of the acquisition identified £10k of expenditure qualifying for main pool plant & machinery allowances and £120k of expenditure qualifying for special rate pool plant & machinery allowances. These balances were made up of assets such as telephone cabling, smoke detectors, and mechanical ironmongery within the main pool and electrical wiring, water pipework, and heating systems in the special rate pool.
The capital allowances analysis for the renovation work was based on the itemised costs incurred on each asset installed. This resulted in £200k of expenditure qualifying for main pool plant & machinery allowances and £30k of expenditure qualifying for special rate pool plant & machinery allowances.
Overall, this claim would comprise £360k of allowances in total, which should result in a whopping £144k of tax savings over time.
How is the relief given?
Allowances are usually claimed through writing down allowances, which are given on a reducing balance basis at a rate of 18% a year and 6% a year for the main pool and special rate pool respectively. There can be opportunities to accelerate the claims to be 100% in the year of expenditure through reliefs such as the Annual Investment Allowance (up to a total of £1m across business under common control) or Full Expensing (for companies only). In this example, writing down allowances are to be claimed.
For tax year 2024/2025, the allowances can only be relieved against FHL profits. For tax year 2025/2026 onwards, they can be relieved against all property taxable profits. Note that the loss created for the FHL activity in tax year 2024/2025 can also be carried forward to relieve against the property taxable profits in 2025/2026 onwards.
| Tax year | Taxable profits available before capital allowances claim (FHL only in 2024/25) (£) | Writing down allowances due from capital allowances (£) | Taxable profit/loss after capital allowances and carried forward losses (£) | Taxable loss carried forward (£) | Tax saved at a rate of 40% (£) |
| 2024 / 2025 | 5,000 | 46,800 | -41,800 | -41,800 | 2,000 |
| 2025 / 2026 | 85,000 | 39,456 | 3,744 | – | 32,502 |
| 2026 / 2027 | 95,000 | 33,369 | 61,631 | – | 13,348 |
| 2027 / 2028 | 95,000 | 28,317 | 66,683 | – | 11,327 |
| 2028 / 2029 | 95,000 | 24,117 | 70,883 | – | 9,647 |
| Sub-total | 68,824 | ||||
| Future periods | 187,941 | 75,176 | |||
| Total | 360,000 | 144,000 |
Time Limits
While the Furnished Holiday Let rules are being abolished in April 2025, claims for capital allowances can be submitted after this date, provided the costs are incurred within the FHL business before 6th April 2025, and the claims are included on tax returns for tax years up to the year ended 5th April 2025.
The deadline for submission of tax returns for the year ended 5th April 2025 is 31st January 2026, so there is still time to take action.
Note that similar principles apply to corporate entities, but with slightly different time limits.
How can we help you?
If you own a holiday let property that was either a residential property when you acquired it or that you have undertaken renovation work to, get in touch with our specialist Capital Allowances Team so that we can help you explore what tax relief you may be entitled to.