Furnished Holiday Lettings-Gifts of Furniture Etc.

Capital Allowances - Only Problem I See is Valuing Second-Hand Furniture and Furnishings Etc.

Didn't find your answer?

Haven't dealt with an FHL client in years until now. New client (a legit builder) has just started a new FHL business a year ago. He had modernised a dilapidated building he owned in the year or so before the FHL first started.

Client spent a couple of grand immediately before the first letting on bedding, soft furnishings and other typical Capital Allowance assets. When I looked at his Sykes Cottages property holiday page pictures it was evident there was far more furniture in the FHL than what he had bought. I asked him where the other furniture and furnishings came from and he said they were all gifts from his sibling and parents, which is feasible.

It would appear to be a straight-forward case of CA23040 and CAA01/S14 (see following link), so that any qualifying plant and machinery received as a gift is treated as a purchase made by my client at market value at the time the asset is brought into use within a qualifying FHL:

https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23040

If the first letting started on, say, 6 October 2020, it seems to be a case of merely itemising all FHL plant and machinery assets gifted to my client before that date (or brought into use in the FHL after that date) and then claiming WDAs (not AIAs) on their 6 October 2020 or subsequent market values, as applicable.

The only snag I can see is how to value second-hand furniture etc. (Ebay not being a particularly great guide).

Any helpful comments appreciated.

 

 

Replies (8)

Please login or register to join the discussion.

RLI
By lionofludesch
22nd Mar 2022 07:35

Is it going to be huge?

Or is the furniture stuff that the relatives were going to have collected by the binmen?

I'm not saying it won't have a value but that value will be small enough to be unlikely to attract any challenge. In which case, I'd just encourage the client to be fair in his valuation.

If, on the other hand, there is a lot of value, I'd reconsider the above.

Thanks (1)
paddle steamer
By DJKL
22nd Mar 2022 10:04

From experience of getting rid of furniture left behind by tenants, unless some fancy designer stuff it is usually worth next to nothing.

We have an auction house in Edinburgh that does a weekly "yard" sale and most times, when we send in stuff to them ,after commission we only get a few pounds for a van load, in fact if one were to cost the van and man we lose money but at least it works out cheaper than filling a skip.

Thanks (1)
avatar
By David Ex
22nd Mar 2022 11:07

Totally agree with the others. The value of second hand furniture is generally negligible. Can’t imagine the sibling and parents would have donated anything of value - certainly not with a view to its being used in a FHL.

EBay lets you see sold prices which might give some useful guidance. I’d definitely make sure the client is the one who warrants the values used and is persuaded to be “sensible”.

Oh, off topic but presumably the second hand furniture meets the relevant safety obligations. Very old furniture might have character but it probably burns well too.

Thanks (1)
By penelope pitstop
01st Apr 2022 16:12

In view of the difficulty of the monthly holiday lettings company statements and revenue recognition (deposits, refunds, Covid cancellations, returns and rescheduling of holdays etc.) I think we are compelled to start with cash basis accounting rather than accruals.

Under cash basis I assume we can still claim a deduction for capital expenditure on the market value of the gifts on 6 October 2020, the lettings start date, even though "cash" has never changed hands on the acquisition of these gifts

However, I am not 100% sure because I cannot tell if the effect of CA23040 is to turn P&M gifts into capital allowance claims only for accruals basis or if its effect also extends to turning such gifts into deductible capital expenditure under cash basis accounting (not capital allowances).

https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23040

Does anyone know the answer for sure.

Thanks (0)
Replying to penelope pitstop:
RLI
By lionofludesch
01st Apr 2022 16:14

penelope pitstop wrote:

Under cash basis I assume we can still claim a deduction for capital expenditure on the market value of the gifts on 6 October 2020, the lettings start date, even though "cash" has never changed hands on the acquisition of these gifts

What sort of gift would involve a transfer of cash ?

Thanks (0)
Replying to lionofludesch:
By penelope pitstop
01st Apr 2022 16:32

Ha!

I am alluding to the use of the expression "cash basis" for FHL and the fact no cash has been expended on the acquisition of the P&M assets which were the subject of the gifts.

It seems odd should the landlord be able to claim CAs on the gifts under accruals accounting but not a deduction for capital expenditure under "cash basis".

The effect of CA23040 is to bring such gifts within the capital allowances "fold", But is it also brought into the capital expenditure "fold" under cash basis. If so, by means of what tax trickery is this achieved.

Equity perhaps? Is that a tax concept?

Thanks (0)
Replying to penelope pitstop:
RLI
By lionofludesch
01st Apr 2022 17:45

penelope pitstop wrote:

Ha!

I am alluding to the use of the expression "cash basis" for FHL and the fact no cash has been expended on the acquisition of the P&M assets which were the subject of the gifts.

I asked earlier how much this furniture was worth. You haven't said yet and maybe that's because you don't know.

But if it's not very much, I'd claim - cash or accruals - and I'd be confident that it wouldn't be challenged. If it's £500 of second hand furniture, it's probably £150, maybe £210, of tax and NI. Buttons. If HMRC did bring it up, I'd probably concede rather than spend my time pursuing it. It'd be cheaper for the client.*

Use the white space if you're toey about it.

*Just as an aside, I did once say to an Inspector "we do not consider this worth pursuing" over some trivial matter and he dropped it like the proverbial stone, without an adjustment to profit.

Thanks (0)
Replying to lionofludesch:
By penelope pitstop
01st Apr 2022 16:30

I sell an asset to a close relative for £50,000. It is worth £1,000,000.

I had always assumed a sale at an undervalue was a gift. And cash changes hands too.

Thanks (0)