2025 is proving to be a challenging year for hotel businesses. The recent rise in employment costs from minimum wage and national insurance increases, rising energy costs and supply chain disruptions all create financial strain. Hoteliers are under pressure to find innovative ways to manage costs and enhance guest experiences.
There are many tax reliefs available that can minimise tax exposure and ease cash flow. Arguably the most impactful of these reliefs is Capital Allowances. Whether you are investing in new concepts, purchasing a new hotel or renovating an existing business, Capital Allowances should be considered now, more than ever.
Businesses investing in their hotel & capital allowances
Capital allowances (CAs) are a vital form of tax relief that enable businesses to deduct qualifying capital expenditure from their taxable profits. This mechanism helps reduce immediate tax exposure and improves cash flow, in particular allowing hotels to reinvest in their operations and maintain competitiveness.
Hotel businesses can claim CAs on various types of capital expenditure, such as acquiring a new hotel property, undertaking major renovations or refurbishments of existing premises, upgrading guest facilities, or investing in new plant, machinery, and integral building features.
There are different versions of CAs and for some the rate of relief is more attractive than others. The below table summarises the main tax reliefs available on this expenditure:
| Plant & Machinery | Special Rate | SBAs | Land remediation relief | |
| Rate of relief | 18% writing down basis | 6% writing down basis | 3% straight line | 100% of original cost plus 50% enhancement |
| Scope for 100% relief? | See below re. AIA and full expensing | N/a | Already enhanced to 150% | |
| Typical qualifying costs | Plant and machinery | Integral features | Structural and building | Asbestos removal |
Undertaking a detailed CA review is essential to ensure that all qualifying expenditure is correctly identified and allocated to the appropriate tax pools (summarised above), maximising the available relief. We would also recommend that a review is undertaken to ensure companies maximise their claims by ensure costs such as preliminary project kick off costs or professional fees are considered and whether they can enhance the claim.
A detailed review will also ensure all beneficial and necessary claims and elections are made, to ensure relief is maximised and risk mitigated.
How can relief be accelerated up to 100% of the cost in the year of incurring?
As mentioned in the above table, some of the rates of relief can be relatively slow, so businesses should look to any allowances that may accelerate relief to 100%. The potential options are set out below:
| Rate of relief | Threshold | Eligible Businesses | Restrictions | |
| Annual Investment Allowance (‘AIA’) | 100% | £1m shared between group and connected companies. | Available to most businesses, including sole traders, partnerships, and companies | Not eligible for cars or assets acquired from connected companies. |
| Full Expensing | 100% | No threshold | Only available to companies subject to UK corporation tax | Assets must be new and unused and not acquired via finance lease or subsequently leased out. |
| Special Rate first year allowance (‘SR Allowance’) | 50% |
Given businesses undertake a large outlay of cash when funding a project whether that be refurbishment, renovation or otherwise, ensuring they can claim tax relief on the expenditure as early as possible will help reduce immediate corporation tax liabilities and ease cash flow pressures.
We would always recommend that the above allowances are considered in conjunction with the claim specific to the business needs, to ensure that tax relief is being taken at the appropriate time.
Other tax considerations surrounding acquiring a hotel business
- Interest deductibility – If financing via debt, interest is typically deductible but ensure it does not fall foul of any anti-avoidance rules or is subject to restriction. For example, should net group interest expense exceed £2m Corporate Interest Restriction will need to be considered.
- S198 Election – A valuable election that allows a purchaser to claim capital allowances on the property it acquires, however this will notoriously require discussions with the seller as it will be a bargaining point.
- Acquisition structure – Consideration should be made as to a tax efficiency and commercially suitable acquisition structure. For example, a common acquisition structure is a PropCo holding the property and the business being undertaken by an OpCp, as well as other structures.
- Stamp Duty Land Tax – Differing rates will apply whether the acquisition is of assets or shares, which may factor in to the how a purchase is structured. Consideration should also be given to any residential property on the grounds, this could also give rise to other concerns such as ATED.
- VAT – The acquisition of a hotel may be classified as a transfer of going concern, but advice should be taken to confirm the VAT position and to ensure the treatment of purchases and supplies are treated in line with VAT legislation.
- Employment Taxes – Should staff transfer as part of the acquisition it is important to ensure you are compliant with TUPE regulations.
How can Menzies help businesses?
If you’re considering, in the process or have recently completed a renovation, refurbishment or property acquisition within the hospitality sector, then please do reach out to us since our experts have a great skillset in advising on maximising tax reliefs but also considering the wider commercial and tax considerations for a business.
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