Webinar | Planning for the Future: Budget Briefing, Inheritance Tax and Capital Allowances for Hotel Owners

Hosted by Carine Bonnejean (Managing Director – Hotels, Christie & Co) and Ufi Ibrahim (CEO, Energy & Environment Alliance) the webinar featured views and analysis from a panel of experts:

• Post-Budget update on the economic landscape – Mark Berrisford-Smith, independent economist
• Inheritance Tax – Robert Davies, Managing Associate - Foot Anstey
• Capital Allowances – Sean Alexander, Co-founder and Director - Tallex

Watch the recording or read a summary of the key takeaways below.

KEY TAKEAWAYS 

Post-Budget update on economic landscape 

The webinar opened with an overview of the macro-picture in the UK from Mark Berrisford-Smith:

• The public finances have suffered long-term damage, with the process of recovering from the Global Financial Crisis of 2007-09 having been derailed by Covid spending and the Ukraine energy shock. The result was that the measures to increase taxation in the Autumn Budget were not a surprise.
  • The economic growth outlook is slow and fragile: the UK economy is expanding, but barely above stall speed. The Purchasing Managers’ Index (PMI) readings are stuck at 50–52, indicative of borderline expansion, with the manufacturing sector in recession.
  • Unfortunately, the OBR’s downgraded growth forecast of 1.5% a year for the rest of the decade is realistic.
  • Demand for consumer-facing services, including retailing, hospitality, and entertainment, remains below pre-pandemic levels, suggesting that changes in behaviour have resulted in an excess of supply.
    • Accommodation sector activity is still around 10% lower than it was in 2019.
    • Food service sector activity is around 7% smaller than in 2019.
• The key moves in the Autumn Budget were the extended freeze on personal allowances and changes to salary sacrifice schemes. Taken together, the measures are slated to generate an additional £26bn in revenues in 2029/30. These additional taxes buy the Chancellor more headroom against the OBR’s forecasts, as well as paying for last summer’s policy reversals (winter fuel, and cuts to welfare spending).
• Mark discussed his view that this Budget was primarily about keeping backbench MPs and the financial markets happy, rather than boosting growth and helping working people. He also noted that the current-year deficit is already tracking well above forecasts, so that more revenue-raising measures may be required later, with one option being the ‘two-tax shuffle’, in which Income tax is increased at the same time as employees’ NI contributions are cut, albeit that this approach would be a political ‘hard sell’.
• The OBR expects that the current budget deficit (c. £80bn this year) will move to a £22bn surplus by 2029/30. The measures in the recent Budget embed high levels of debt and taxation without doing anything of note to generate more growth. Businesses and people spending money are the key drivers of economic activity, and there was little to help lift the mood of pessimism.
• Measures to reduce energy costs and freeze rail fares will lower inflation in the short term, so that there is scope for an interest rate cut before the end of the year. The Bank of England may then cut its Bank Rate twice more next year, bringing base rate down to 3.25%. Mark offered the view that ‘normal’ rates will be in the region of 3–4% during the next few years.
• In recent times, many consumers have been saving more money than they normally would, with the UK’s households sitting on around £2 trillion in bank deposits. If some of this cash is spent, we could see a short-term growth spurt. If not, then annual growth of around 1.5% and ongoing pressure on public finances will be the order of the day.

Inheritance Tax

Robert Davies presented an update on Inheritance Tax for hotel owners:

• The core structure of Inheritance Tax (IHT) is unchanged:
  • Nil rate band: £325,000
  • Residence nil rate band: £175,000 (complex, and tapered away above £2m total estate, including business assets)
  • Main rate: 40%
• No changes were announced to the taxation of lifetime gifts, and the seven year rule as relates to gifts still applies. The main exemptions from IHT are:
  • Spouse and charity exemptions
  • Business Property Relief (BPR) – but with important changes
• Changes have been made to Business Property Relief. Historically, qualifying business assets or shares (e.g. most trading hotel companies) could receive 100% Business Property Relief with no monetary cap. Changes in the 2024 Budget, effective from 5 April 2026, will see the 100% relief capped at £1m per individual, with 50% relief on the value of qualifying assets in excess of £1m.  Further changes in the 2025 Budget mean that the £1m allowance will be transferable between spouses, but in many cases specific Will planning may still be advisable to ensure the most tax efficient overall outcome.
• As an example, if a hotel business is worth £10m, the owning couple’s combined 100% BPR is £2m. The remaining £8m at 50% relief leaves £4m exposed to IHT (most likely on second death) at 40%, creating a £1.6m IHT bill, where previously the business could have been fully relieved
• Trading businesses (e.g. traditional hotels with clear services) qualify, while investment assets (e.g. long-let commercial premises) do not
• There is a grey area when it comes to aparthotels/serviced apartments, and the outcome depends on services delivered and evidence (frequency of cleaning, staffed reception, emergency cover, food service, etc.). Mixed groups (hotels and serviced apartments) can still qualify in full if, on balance, the group is more strongly weighted to trading (revenue, profit, value and activity).  Where there are multiple group companies this is more complex, with potential pitfalls and bespoke advice is advisable.
• From April 2027, most pensions (e.g. SIPPs) will fall within the IHT net. For many hotel owners, this means both the business and pension pots may face IHT, increasing the overall estate exposure
• When it comes to paying the tax, IHT on qualifying business assets and shares can be paid in 10 annual instalments, interest-free. However, cash may need to be extracted from the business to fund this, which may then give rise to personal income taxes.  It also prolongs estate administration matters.
• Key planning levers to consider
  • Get an up-to-date valuation of your business
  • Quantify your IHT exposure and liquidity gap
  • Review your BPR position in detail, including assessing any potentially non qualifying parts of your business, e.g. aparthotels/serviced apartments.  Consider possible steps to improve position and seek professional advice
  • Consider your options, including:
    • Gifting assets or shares to family members
    • Passing assets or shares into trust
    • Take out life insurance for a fixed term.
  • Deeds of variation can be used to divert inheritances where helpful and all impacted beneficiaries agree, but must be done within two years of a death
• There is a time-limited planning window before 5th April 2026 next year, where more than £1m of qualifying business assets can be passed into trust using BPR without an upfront IHT charge. After this, transfers of value above £1m into trust may trigger entry charges.

Capital Allowances

Finally, Sean Alexander presented an update on Capital Allowances.

• Capital Allowances are the only UK tax relief on the cost of:
  • Buying, building, fitting out or refurbishing hotels
  • Spending on plant, equipment and FF&E (beds, lifts, fire alarms, HVAC, etc.)
• No capital allowances mean no tax relief on that capital spend. Capital Allowances are available to companies and unincorporated businesses, and freeholders and leaseholders (short leases included)
• They are not automatic: they must be identified, evidenced and claimed. Many hotel businesses under-claim, especially on older projects and embedded assets in buildings
• There are two main categories of allowances:
  • Plant & Machinery (P&M) Allowances covers systems and fixtures that keep the hotel operating such as lifts, lighting, electrical and mechanical services, fire alarms, beds, wardrobes, desks, chairs, kitchen equipment
    • This has several routes to relief:
      • First Year Allowances (full expensing) – fastest relief
      • Annual Investment Allowance - 100% relief up to £1m/year, for new or second-hand P&M
      • Writing Down Allowances – slow, default relief
  • Structures and Buildings Allowance (SBA) covers the fabric of the building: foundations, walls, roof, floors
    • There is a single route to relief
• Capital Allowances are important because with a typical hotel’s spend, 90–100% of capex is eligible under P&M or SBA. For many hotel groups, annual tax savings run from hundreds of thousands to several million pounds. If you don’t claim everything you’re entitled to, you’re effectively increasing the real cost of your projects
• Several things have stayed the same following the Autumn Budget 2025: full expensing (100%) remains and is uncapped for new, unused P&M; and AIA at £1m remains, giving 100% on new and second-hand P&M up to that limit. Together, these give a generous regime for timely, well-planned claims
• A few things will now change:
  • There is a new 40% first-year allowance (FYA) designed mainly to help leased assets and unincorporated businesses. This is important for hotels which operate PropCo/OpCo structures and lease FF&E or loose assets from PropCo to OpCo. Full expensing does not apply to leased assets, but the 40% FYA can. It’s not as generous as 100%, but it’s a meaningful acceleration where nothing was available before.
  • There will be a cut in writing down allowances from April 2026:
    • The main rate falls from 18% to 14%
    • This means late or poorly structured claims become less attractive and relief drags out over a longer period
• There are no special incentives for energy-efficient kit: the current rules give no extra tax benefit for low-carbon/efficient plant vs inefficient plant
• Sean noted that in reality all ‘permanent’ first-year allowances have historically been temporary in practice, and that full expensing is an obvious target when the government needs revenue.
• The Budget has not removed the ability to review historic projects and identify missed allowances on past builds, acquisitions, fit-outs, refurbishments etc. Provided you still own the assets, you can value them and bring them into capital allowances pools now and claim relief going forward via WDAs (at the newer, lower rates). This is still worthwhile where you’re currently claiming nothing; something is better than nothing, particularly if you are profit-making
• Hotels are the kind of assets that benefit most from the current allowances regime. To maximise value, owners should build capital allowances thinking into capex planning and budgeting, not just year-end tax compliance

Please note: While the webinar offered insights and analysis from a panel of specialists, businesses should consult tax advisors for specific guidance. You can contact Robert Davies at Robert.Davies@footanstey.com and Sean Alexander at sean@tallex.co.uk for more information.

For more information about this webinar or if you have any questions, contact us via hotels@christie.com.