HOTEL PURCHASES - MAKING THE MOST OF CAPITAL ALLOWANCES
 What have you bought?
When purchasing a hotel the purchase agreement will often split the price into:
• Land and building
• Chattels
• Goodwill
What does this mean for the capital allowances? The answer is very little, because the values we are interested in lie not in the chattels or goodwill but within the Land and Buildings.
Fixed plant
Capital allowable fixed plant includes mechanical and electrical installations, fittings, fixed equipment and ambient fittings forming part of the land and buildings.
Values in hotels can be significant and potentially from 30%-45% of building costs and 15%-30% of a purchase price.
The high values are simply because hotels contain a greater value of allowable fit-out than other types of property including ensuite rooms, fitted furniture, bars, reception and decorative fittings in addition to the usual mechanical and electrical plant items.
Often overlooked
In many cases vendors have overlooked values through lack of knowledge or advice, to the benefit of purchasers who can then claim based on an apportionment of the purchase price they pay for the land and buildings. Chattels will also be claimable at the price in the contract.
The results
This leaves many transactions open to review and a time spent on due diligence can reap benefits. Benchmark data from current and past claims indicates the following potential allowances value ranges based on purchase prices:
• Small budget and provincial hotels 15%-20%
• Boutique city hotels 20%-25%
• Larger four star plus city hotels 20%-30%
• Country house hotels. 10%-20%
Values need to be split between integral plant and main pool plant following changes to the regime from 1 April 2008. Hotels, again, benefit from greater relative levels of main pool plant.
Key contact
Andy White Davis Langdon LLP
Mid City Place, 71 High Holborn, London WC1V 6QS
Phone: 020 7061 7000
Fax: 020 7061 7061
Email: andy.white@davislangdon.com |
