I am building a deluxe outbuilding in my garden to rent out as an Airbnb. Can I offset the building costs and the furnishing costs of the outbuilding against my future rental income? 

Arthur Weller replies:  

The building costs are capital expenditure, so they cannot be offset against future rental income. These building costs can only be offset against future capital gains when the property is eventually sold. The initial cost of furnishing or fitting the outbuilding (beds, sofas, curtains, appliances, etc.) is generally capital expenditure, not an allowable deductible expense. However, tax relief is available under the replacement of domestic items relief rules – but only for replacing like-for-like items (e.g., if you replace a worn-out sofa with a similar sofa). You cannot claim relief for the initial purchase of furniture or items when setting up the property. See HMRC’s Property Income Manual at PIM3210.