Is my holiday park home tax deductible?
You want to buy a holiday home, but you have a limited budget. As a low-cost option, you are considering buying a static home on a holiday park which will generate income to offset the cost. Another advantage is that you’ll get tax relief on the purchase price. Is this true? Mark Towns from our Edinburgh office looks at this in more detail.
Businesses buying or constructing a building or structure can claim a special type of tax allowance known as the structures and buildings allowance (SBA). The SBA is a type of capital allowance, that is a tax deduction for assets used in a business. The allowance is equal to 3% per year of the cost but there are lots of qualifying conditions.
This does mean that you may be correct in saying that tax relief can be claimed for the cost of a static home in a holiday park.
However, the bad news is that the SBA can’t be claimed for the cost of buying (or constructing) a structure or building which is used for residential purposes, even where it’s used for a rental business which qualifies as an FHL. That said, there are other types of capital allowances that might still apply.
A letting business that qualifies as an FHL is entitled to capital allowances for money it spends on plant or machinery (P&M) used in its letting business. The rate at which P&M allowances is given is up to six times greater (up to 18% per annum) than the SBA, so that’s good news. However, to qualify for P&M 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’s internal guidance says that 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 the purposes of: The Caravan Sites and Control of Development Act 1960; or The 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 will also be entitled to claim them. For a site to qualify as a caravan site it must be a site licensed by the local authority under the CSCDA as a holiday caravan site. It does not include a holiday camp, leisure park, hotel or conference centre.
IN SUMMARY
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 which are sited on holiday parks and let as holiday accommodation.
