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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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IBA: Qualifying hotels: Meaning of hotel

The legislation does not define hotel and so you should give it its ordinary meaning.If you have to decide whether a building is a hotel you should find the definition of hotel in Section 1 (3) Hotel Proprietors Act 1956 helpful. Section 1 (3) Hotel Proprietors Act 1956 defines a hotel as an establishment held out by the proprietor as offering food and drink and, if so required, sleeping accommodation, without special contract, to any traveller presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided and who is in a fit state to be received.

The legislation is intended to give IBA on hotels. A guesthouse or holiday camp that meets the conditions for being a qualifying hotel will also be able to qualify for IBA as a qualifying hotel. Other guesthouses and holiday camps will not. Self-catering holiday accommodation, pubs and farmhouses with a few rooms to let, seaside and other lodging houses, residential homes, convalescent and nursing homes, health farms etc. are excluded. They are not hotels.

A hotel can be in more than one building. Squash courts, tennis courts, a swimming pool, a car park etc. which are part of the amenities of the hotel are part of the hotel and so qualifying expenditure on them qualifies for allowances even if non residents are also allowed to use them.

Accommodation for staff also qualifies for allowances as part of the hotel, even if it is in a separate building. The proprietor’s domestic accommodation and accommodation for the proprietor’s family is not included and, if accommodation like that is in the hotel building, is treated as a non qualifying part. If the proprietor’s etc. domestic accommodation is in the hotel building it will qualify under the 25% disregard rule CA32700 provided that the qualifying expenditure on it and the other non qualifying parts is not more than 25% of the total qualifying expenditure. The proprietor’s domestic accommodation cannot qualify for IBA if it is in a separate building because in that case the 25% disregard rule cannot apply to it.

Example Jim builds the Morristown hotel. The construction costs are £1.5 million excluding the land. The hotel includes a luxury penthouse suite that is Jim’s private accommodation. £400,000 of the £1.5 million construction cost relates to the penthouse suite. The penthouse suite does not qualify for IBA and so the expenditure qualifying for IBA is £1,100,000 million (= £1.5 million less £400,000, the cost of Jim’s penthouse suite). If Jim builds an extension to the hotel to be used as staff accommodation at a cost of £200,000 the whole hotel then qualifies for IBA. The total qualifying expenditure becomes £1,700,000 and the qualifying expenditure on the non-qualifying part, £400,000, is less than 25% of the total qualifying expenditure, £1,700,000.