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HMRC internal manual

Capital Allowances Manual

IBA: Qualifying hotels: Background and meaning of qualifying hotel


When IBA was introduced hotels were specifically excluded. Use as a hotel is still on the list of excepted uses. Legislation to give IBA on capital expenditure on constructing hotels was introduced in 1978. The legislation was intended to encourage the holiday trade. Allowances are given for expenditure incurred on or after 12 April 1978 on constructing hotels that are qualifying hotels. It is only hotels that are qualifying hotels that qualify for IBA - other hotels do not.

You should remember that what matters is the date on which the expenditure on constructing the hotel was incurred. Expenditure incurred on acquiring a hotel on or after 12 April 1978 does not qualify for IBA even if the hotel is a qualifying hotel unless the hotel was constructed on or after 12 April 1978. For example, the Chelsea hotel was constructed in the 1920s. It satisfies the conditions for being a qualifying hotel. If Leonard buys the Chelsea hotel in March 2004 Leonard cannot claim IBA because the hotel was constructed before 12 March 1978.

A hotel has to be in a building of a permanent nature to be a qualifying hotel. It must be open for at least four months in the season that runs from the beginning of April to the end of October. This rules out hotels like a hotel that caters for skiers and is open only in winter.

These are the other conditions to be satisfied before the hotel can be a qualifying hotel:

* when the hotel is open in the season it must have at least 10 letting bedrooms, 
* the sleeping accommodation must consist wholly or mainly of letting bedrooms, and 
* the services provided for guests must normally include the provision of breakfast and an evening meal, the making of beds and the cleaning of rooms. 
HMRC regard the ‘meals test’ as satisfied where the offering of breakfast and dinner is a normal event in the hotel’s carrying on of its business. HMRC do not regard it as satisfied where the service of meals is exceptional, for example, if either breakfast or an evening meal is available only on request. 

There are rules about the period to be looked at in deciding whether these conditions are satisfied [CA32402](

A letting bedroom is a private bedroom available for letting to the public generally and not normally in the same occupation for more than one month. Establishments like residential homes for the elderly do not have letting bedrooms because their rooms are normally in the same occupation for more than one month and so they cannot be qualifying hotels.