Budget Update: Property investment for business owners

Last week’s budget brought some positive news for business owners who are considering investing in the booming UK staycation market.

The Chancellor announced a new capital allowance offer for businesses called ‘full expensing’ that will build on the success of the super-deduction tax break, which is ending on 31st March.

The super-deduction previously announced in 2021’s budget encouraged companies to make additional investments, and effectively rewarded businesses that helped to create the right conditions for sustained economic growth by investing here in the UK.

According to gov.uk,  ‘from April 2023 until the end of March 2026, companies can claim 100% capital allowances on qualifying plant and machinery investments’. This allows business owners to write off 100% of the cost in one go could equate to a tax cut of 25 pence for every pound invested where businesses are making profits over £250,000.

As Holmeshaw provides property investment opportunities to our clients, you may wonder why we have chosen to discuss plant and machinery investments in this blog. Continue reading this budget update to find out.

Property investment for business owners

Why plant and machinery?

When we talk about plant and machinery, you may have a picture in your head or some idea of what we are talking about. However, the HMRC definition of plant and machinery is much wider than you may think!

You may not be aware that some furnished holiday lets (FHLs), such as lodges and caravans (and some of their fixtures and fittings), are classed as plant and machinery by HMRC, which gives business owners looking to invest the opportunity to put money into lodges for holiday rental, while enjoying the tax advantage provided by full expensing up to the end of March 2026.

Holiday lodge investments are classed as ‘plant’:

·       When they do not occupy a fixed site all year round. So, if the lodge is regularly moved as part of its normal rental usage or taken to a different site or location for the winter months, it is regarded as ‘plant’ by HMRC.  

·       When lodges are provided mainly for holiday lettings on a holiday caravan site, they are classed as ‘plant’, whether they are fixed or moved.

You can read more in the HMRC capital allowances manual.

Corporation tax changes

As well as the announcement about capital allowances, corporation tax was also changed in the budget, increasing from 19% to 25% for companies making more than £250,000 profit.  

But if some of this company profit was taken out for holiday lodge investment, the financial rewards for companies are twofold. Firstly, the corporation tax due on profits would be significantly reduced. And secondly, holiday lodge investments will make more money through the rental market, offering an annual return on the initial investment, which can also be tax efficient through FHL tax benefits.

Tax Advantages of FHLs

When we emerged from lockdown, the demand for UK holiday rentals rocketed because of the increase in significant factors such as:

·       The number of freelancers or those working from home

·       The number of dog owners who want to take their pets on vacation

·       Wariness about travelling abroad in case of unforeseen travel restrictions

·       Higher prices of foreign travel because of losses suffered by airlines and travel companies during the pandemic

It is true that certain business conditions have to be met for a holiday lodge investment to be classed as an FHL. However, with Holmeshaw property investments, site management is included in the price, so company owners don’t have to worry about these criteria.

For business investors purchasing through a limited company, the overall tax burden could be reduced. For those wanting to invest personal cash, the money made through the rental market can be made tax efficient through FHL tax benefits. 

So what tax advantages do FHLs provide for personal and business investments?

1               FHLs attract more tax allowances than long-term rentals, residential dwellings or commercial properties, including Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, relief for gifts of business assets and relief for leans to traders)

2               Claiming capital allowances on the original investment and certain refurbishment costs (when necessary) can reduce the tax payable on the ROI.

3 HMRC also treats assets such as furniture and soft furnishings, heating/lighting and ventilation as plant or machinery, so the same capital allowances apply.

For those investing personal cash rather than company profits, there are other benefits such as:

4               Rental income is classed as earnings for pension purposes so that investors can make tax-advantaged contributions to personal pensions.

5               Because the holiday lodge is treated as a business, expenses incurred can be offset against revenue when renting the property out. Please Note: This is not applicable for dates when the owner uses the property for a holiday.

6               Ownership can be split between a husband and wife, for example, so both profits and pension contributions can be split between both parties.

Benefits for investing business owners

We hope that you have found this budget update and how the changes affect business investment decisions useful.

The net rental income combined with tax deductions available for FHLs makes holiday lodges a secure, high-yield investment for companies searching for a viable option to sink company profits.

·       By investing in the ever-increasing UK staycation market and buying a holiday lodge, companies could also be reducing their overall tax bill when the purchase is made through a limited company. At Holmeshaw, our UK staycation lodge property investment portfolio consists of lodges that are provided mainly for holiday lettings on a holiday caravan site; they are classed as ‘plant’, whether they are fixed or moved.

Contact Holmeshaw today for more information about our UK staycation holiday lodge investment opportunities and to learn how investing business owners can take advantage of this win-win situation through Holmeshaw property investments.

We encourage business owners to take financial advice before investing profits in holiday lodges.