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Change of use from FHL to rented accommodation

Client has changed the use of a property from a Furnished Holiday Let to long term rent

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A sole trader client of mine has just informed me that the UK FHL they have had for several years is now being rented out long-term from January 2022. I know the rules going forward in relation to mortgage interest and capital allowances all change. Do I have to do anything about the capital allowances they correctly claimed when it was an FHL? Is there anything else I need to think about for their 2021/22 tax return?

Any help would be gratefully received.

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By Piltdown Man
13th Apr 2022 17:26

The capital allowances may be a problem as there is a market value disposal for the P&M used in the FHL business, which, for the fixtures at least is likely to be based upon an apportionment of the market value of the property at the time of transfer. There is no mechanism for fixing the disposal value in the FHL business of those fixtures without a transfer of the property. A sting in the tail which is often overlooked (or deliberately ignored!?) or not brought to the attention of clients by many FHL specialist capital allowances consultants.

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By Scots_Accountant
13th Apr 2022 18:53

Thanks PiltdownMan. That's what I was concerned about. I'll need to see if I can get hold of their old tax returns (it's a new client) to see what they actually claimed in the past. I suspect the only allowances claimed will be on the furniture and white goods but will need to check. Presumably if this is the case then we would work out the market value of those assets.

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By Piltdown Man
13th Apr 2022 19:15

OMV of furniture and white goods is likely to be quite low, so should not be a great problem. The main problem is the fixtures as they are valued as an apportionment of the OMV of the property. The VOA rules do permit obsolescent plant to be discounted in the apportionment formula, which might help, but valuing on that basis, just because it suits your objective is not without risk. Hopefully you will find that the P&M pool consists solely of chattels, for which the OMV might be closer to TWDV than original cost.

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Replying to Piltdown Man:
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By Scots_Accountant
13th Apr 2022 19:38

Many thanks for your help. That is very useful. Thanks for taking the time to reply.

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