Tax Questions: Is The Cost of a Holiday Park Home Tax Deductible?
When buying a holiday retreat without a fortune, one low-cost option you may choose to invest in is a static home on a holiday park as it can generate income to offset the cost. Before doing this you may be looking to calculate any available tax relief on the purchase price. This blog talks through the tax relief opportunities for holiday park homes, however, we advise you speak to an accountant to calculate your own unique position.
HMRC sees renting out a property whether residential or commercial as a business. The rules for calculating property rental business profits/losses follow those of trading businesses, subject to limitations on the type of expenses tax deductible – and these limitations generally don’t apply to properties let as holiday homes, as long as they meet conditions for furnished holiday let status.
STRUCTURES AND BUILDINGS ALLOWANCE
Businesses buying or constructing a building or structure can claim a special type of tax allowance known as the structures and buildings allowance. The structures and buildings allowance is a type of capital allowance, that is a tax deduction for assets used in a business and is equal to 3% per year of the cost but there are lots of qualifying conditions. The tax relief can be claimed for the cost of a static home in a holiday park.
The bad news is that the structures and buildings allowance can’t be claimed for the cost of buying or constructing a structure or building used for residential purposes, even where it’s used for a rental business which qualifies as a furnished holiday let. However, there are other types of capital allowances that might still apply.
CAPITAL ALLOWANCES – PLANT
A letting business that qualifies as a furnished holiday let is entitled to capital allowances for money it spends on plant or machinery used in its letting business. The rate at which plant and machinery allowances is given is up to 6 times greater, up to 18% per year, than the structures and buildings allowance, so that’s good news. However, to qualify for plant and machinery allowances the asset must not be a structure or a building. There’s no definition of these in tax law but HMRC and the courts both say that a caravan/portable home on a fixed site is a structure. It therefore appears that any chance of capital allowances is stymied.
Contrary to its general approach, HMRC internal guidance says tax inspectors should accept that a caravan, which is provided mainly for holiday lettings on a holiday caravan site, is Plant whether it is moved or not and that
“As far as a holiday caravan site is concerned, treat anything that is treated as a caravan for purposes of Caravan Sites and Control of Development Act 1960; or Caravans Act (Northern Ireland) 1963 as qualifying.”
Therefore, as a caravan is plant you can claim a tax allowance for the cost of buying or leasing a caravan on a holiday home site against any income it generates. However, if you lease the caravan (usually from the park owner) you’ll need to agree with the freeholder that you can claim the capital allowances as they’ll also be entitled to claim.
Normally a caravan or mobile building is treated as a structure for tax purposes. If used for residential purposes the cost of buying one is not tax deductible from any income it generates. However, HMRC allows a tax deduction (capital allowance) for the cost of caravans etc. sited on holiday parks and let as holiday accommodation.
Useful related content:
- HMRC Capital Allowances Manual (Dot Gov)
- Furnished Holiday Let Considerations (LHP Blog)
To discover your own unique position when purchasing a holiday park home or another type of investment, talk to our team of tax specialists with experience in these matters. Our team of tax specialists are based in offices across Pembrokshire, Carmarthen and Ceredigion and have an in-depth knowledge of holiday let investments and the tax implications. Request a callback with no obligation on let’s talk.