Tax relief for hotel conversions

Are you thinking about acquiring an unused building for conversion into a hotel? A valuable tax relief may be available if the building is located in a designated area. We outline the scope of the scheme and the requirements for how you can qualify.

Business Premises Renovation Allowances (BPRA) is a government scheme that provides a 100% initial capital allowance for capital expenditure incurred on the renovation, conversion or repair of qualifying business properties that have been unused for at least a year in disadvantaged areas of the UK.

The amount of qualifying expenditure for relief under the scheme is €20m per project. Any expenditure in excess of that amount would potentially qualify for writing down allowances at 18% or 8% under the usual capital allowances rules. The building must be retained for at least seven years after first being used following the renovation, conversion or repair, in order to prevent the relief being clawed back.

The scheme was first introduced for a limited period and scheduled to expire in April 2012, but has been extended up to April 2017. This was welcome news for hotel owners who had suffered from the removal of tax allowances on capital expenditure that was previously available under the Industrial Buildings Allowance scheme. BPRAs had therefore historically provided an extremely valuable and up-front relief for companies looking to convert unused premises into hotels.

There is more good news for hotel owners in the latest Finance Bill, as the government has provided more clarity on what expenditure qualifies for BPRA. This is a helpful move as not only are the costs of the works of renovation, conversion or repair (i.e. labour and materials) eligible for relief, but relief will also be provided in respect of certain named associated activities:

  • architectural and design services e.g. to cover the detailed (re)design of the building and its future layout;

  • surveying and engineering e.g. to include surveying services and detailed structural analysis of the building to cover issues such as asbestos or rot;

  • planning applications e.g. the costs of obtaining planning permissions to alter, for example, a listed building;

  • statutory fees and permissions e.g. to cover the costs of building regulation fees or obtaining statutory permissions, from utilities.

Additionally, relief for the costs of other associated activities, such as project management, will be allowed up to a limit of 5% of the cost of the actual works of conversion, renovation or repair.

When the scheme was introduced, the disadvantaged areas that qualified for BPRA included a number of London wards, but that list expired on 31 December 2013. There was a concern an updated list would not provide any scope for investment in London. However, the updated list, which received EC approval on 21 May 2014, still includes the following London wards:

  • River and Thames (Barking and Dagenham);

  • Thamesmead East (Bexley);

  • Woolwich Riverside, Glyndon and Thamesmead Moorings (Greenwich);

  • Royal Docks, Custom House and Beckton (Newham).

The availability of 100% capital allowances under BPRA makes this scheme an incredibly tax-efficient way for hotel builders to renovate, convert or repair disused business premises. If you would like any advice on taking advantage of this relief, please contact Sue Bill.


Sue Bill

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