Resort Areas - Capital Allowances

Capital Allowances in respect of holiday cottages, holiday apartments and other self-catering accommodation listed under Section 9 Tourist Traffic Act 1957

Introduction

The Finance Act 1995 introduced a scheme for the renewal and improvement of certain resort areas. Under Section 48 capital allowances were made available in respect of expenditure incurred on the construction or refurbishment of certain qualifying tourism facilities. Among the facilities which qualify under Section 48 are holiday cottages, holiday apartments and other self-catering accommodation listed under Section 9 Tourist Traffic Act 1957.

The rates at which capital allowances are available in respect of premises qualifying under Section 48 are as follows:

Owner-occupier

• Up to 75% free depreciation or 50% initial allowance in year 1, and 5% annual allowance thereafter to a maximum of 100%

Lessor

• 50% initial allowance in year 1, and 5% annual allowance thereafter to a maximum of 100%

Notes

• Where refurbishment is involved the expenditure on refurbishment must amount to not less than 20% of the site exclusive market value of the building or structure prior to refurbishment.
• The capital allowances mentioned above are now ring-fenced by virtue of the provisions of Section 49A Finance Act 1995 (as inserted by Section 30 Finance Act 1996) unless the conditions of Section 49A(5) have been satisfied.

Revenue Position

We have been asked whether owners of holiday cottages, holiday apartments and other self-catering accommodation listed under Section 9 Tourist Traffic Act 1957, who let such premises directly to tourists, are entitled to relief as owner occupiers i.e. free depreciation up to 75% of the capital expenditure incurred. Revenue’s view is that as such owners do not occupy the premises they are not entitled to the reliefs available to owner occupiers.

Relevant Legislation

Section 48 (2) Finance Act 1995 applies the provisions relating to Industrial Buildings to “qualifying premises” by treating a qualifying premises as being in use for the purposes of a trade carried on in a mill, factory or other similar premises and by treating whatever activity is carried on in the premises as if it were a trade. The section does not specify by whom the activities in question are carried on. The subsection brings “qualifying premises” within the Industrial Buildings Allowances provisions.

Section 48(4) modifies Sections 254 and 264 Income Tax Act 1967 and Section 25 Finance Act 1978, as applied by subsection (2), in relation to “qualifying premises”. It is the provisions of these sections, as modified by Section 48(4), which decide the rate at which the capital allowances are available in respect of a qualifying premises.

Section 25 Finance Act 1978 applies only to buildings occupied by the person by whom capital expenditure on construction was incurred. Revenue’s view is that a holiday cottage, holiday apartment and other self-catering accommodation listed under Section 9 Tourist Traffic Act 1957 would not be occupied by the owner of such a premises. While the property is used commercially by the owner, in the sense that it is let out to holiday-makers, it is not occupied by the owner.