Hotels and property taxation

Alun Oliver Managing Director, E3 Consulting

March 2007 will be memorable to all hoteliers - however the reprieve from bed tax was short lived; with the March 2007 Budget announcement to phase out industrial building allowances.

Industrial buildings? Why is this relevant to me?...Because it is going to cost you dearly!

Capital allowances are an often overlooked tax break available on all commercial property. The rates of tax relief vary depending upon the nature of the property and type of assets purchased; but range from nil up to 100%. Prior to the budget changes 'hotels (as a specific type of industrial building within the tax legislation) would have attracted 100% tax relief' albeit spread over 25 years. From April 2008, this relief begins to erode away and will not simply affect current or future hotel developments, but all hotel expenditure in the last TWENTY years! It is this retrospective impact that must be carefully managed as much as forward planning on current projects. A key area for attention should be to consider and review all historic claims, especially those where only hotel allowances have been claimed by your accountant. This common 'short cut' will now become 'an expensive error'. However it may be possible to revisit claims and adjust them to truly optimise the allowances available. Depending upon the project circumstances you could achieve a tax rebate and will certainly reduce the negative impact of these legislative changes.

Furthermore, the Budget also radically changed other aspects of capital allowances and again these will particularly have a marked impact on the Hotel and Leisure sector. In short, many assets that previously were considered 'plant & machinery' for which relief was given at 25% per annum on a reducing balance basis, will now only attract 10% relief p.a. This measure greatly extends the period over which relief is given, reducing the cashflow benefit.

The most common form of capital allowances is plant & machinery and can give tax relief on between 25% and 60% of the construction costs, including professional fees, depending upon your star rating and level of specification. 'Assets qualifying for this valuable tax relief in hotels, bars & restaurants typically include: feature/ambient lighting, bedroom fittings, alarm systems, sound systems, bar and restaurant fittings, CCTV and swimming/spa pools thereby enabling the owners to yield tax savings against their eligible expenditure', advises Alun Oliver, MD of independent property taxation firm, E3 Consulting, one of only a handful of true experts in this complex field. E3 Consulting, works on hotel projects large and small throughout the UK to identify and deliver additional tax savings and their team has advised a number of clients across the leisure and hospitality sectors including hotels, bars and restaurants, arenas, stadia and visitor attractions.

About E3 Consulting

E3 Consulting has offices in London, Manchester and Dorset and mainly works with clients on a contingent fee basis. Often the first step is to provide a free HEALTHCHECK review, enabling E3 to evaluate the property expenditure (historic, current or future) and so determine the tax saving opportunities. With a brief description of the property, details of the project costs and timing of expenditure, E3 can prepare a detailed HEALTHCHECK. There is no charge or obligation for this review, which sets out the type of tax relief available, the potential savings and proposes the fees to undertake the work.

To find out more telephone 0845 230 6450 or email healthcheck@e3consulting.co.uk