409 Capital allowances: room ownership schemes

Summary

This section counteracts certain packaged schemes which involve groups of individuals investing in hotels. Typically such schemes, referred to as “room ownership schemes”, invite individuals to joint a partnership for the purpose of investing in the construction of an aparthotel. Under an agreement in place at the time the investment is made, individual investors, having drawn down all the capital allowances available, are each to receive ownership of a nominated suite in the hotel.

Essentially, the section denies capital allowances in the case of a hotel investment involving a room ownership scheme. Thus, there is no entitlement to capital allowances where at the time of the investment any agreement or arrangement exists which provides that individual investors are to obtain a room or suite in the hotel at the end of the capital allowance write-off period. This restriction does not affect genuine hotels or aparthotels which are not the subject of such agreements or arrangements.

Details

Definitions

Some of the more important are —

• (1) “hotel investment” which does not extend to holiday camps or registered holiday cottages,
• (1) & (3)(b) “hotel partnership” which, essentially, is any group of number of persons through which an investment in a hotel is made. Where the investment is made by even one of the members of the group, it is treated as having been made by the hotel partnership.

Intent

(2) Being an anti-avoidance provision, the section contains a specific statement of purpose.

Room ownership schemes

(3)(a) A room ownership scheme exists where there is an arrangement in place at the time an investment is made in a hotel granting rights to any member (essentially, anyone who contributes capital to the hotel partnership or is in any other way a member of that partnership) of the group making the investment to acquire a room or suite in the hotel for consideration other than the market value. Such a scheme also exists where the arrangement bestows such rights on any person connected with a member of the group making the investment. It also covers the situation where the arrangement might provide that a member of the group who, for example, having earlier acquired title to a room or suite, diverts that room or suite from hotel use.

Restriction on capital allowances

(4) With the exception of cases meeting the transitional requirements, capital allowances are denied in the case of capital expenditure incurred on any hotel where the investment deal involves a room ownership scheme.

Transitional arrangements

(5)(a) The section applies to capital expenditure on a hotel investment incurred on or after 26 March, 1997.

(5)(b) The section does not apply, however, to projects which were already in the pipeline. These are defined as those in respect of which a binding, written contract was in place or an application for planning permission had been received by a planning authority before 26 March, 1997.

Relevant Date: Finance Act 2021