I have a client who acquired a property (a barn) which has been converted into a furnished holiday lettings which commenced to be let from Oct 12. I am happy that they meet all the necessary qualifications for it to be a FHL within the first 12 months so that is not an issue.
The cost of the conversion of the barn is not being claimed but there is considerable pre-trading expenditure on fitting out the property which I believe qualifies for captial allowances on the basis that it would qualify if the expenditure had been incurred after the "business" had commenced. Expenditure includes integral feature costs such as water supplies, heating, electrics etc,. P&M expenditure such as kitchen units, furniture etc and then a short life asset pool on anything that is likely to be replaced sooner rather than later such as TVs.
The business made a small loss at 5 April 2012 of £3k but after capital allowances this loss increases to £34k (including £25k of AIA after adjusting for the pre/post 01/01/13 allowance allocations).
I was planning to make a note in the white space of their tax return along the following lines but as this is the first FHL I have had for 20+ years I was wondereing if this was sufficient or red-rag to an HMRC bull:
" Property 1st let 29/10/12 and was let for 123 qualifying days in the first year. It was available for letting for 365 days. Pre-trading expenditure and the costs of fitting out (Capital Allowances) have been been brought in as at 29/10/12 and CA include £25,236 AIA".
There is nothing else on the return that is of issue and there will be a repayment based on other income.
Any thoughts or comments would be greatly appreciated, especially if you think that HMRC are likely to raise any queries.
Thanks
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Enquiry Probable
QE deemed to be incurred on 29/10/12. Maximum is £25,000, restricted further by short accounting period 159/365 days.
Para 3 Sch 1 FA2013
First straddling period beginning on or after the relevant date
3(1) This paragraph applies where no part of the first straddling period falls within paragraph 1(2)(a).
(2) So far as concerns expenditure incurred before 1 January 2013, the maximum allowance under section 51A of CAA 2001 for the first straddling period is to be calculated as if the amendment made by section 7(1) had not been made.
Relevant date = 6 April 2012.
The maximum allowed for periods 6 April 2012 to 1 January 2013 is the amount that would have been due had the limit not been increased. In this case £25K x 159/365.