Yet another change to the taxation of residential properties

In recent years there have been a number of changes to the rules governing what expenses/allowances are allowable for buy-to-let landlords when furnishing/repairing a property.  It is important to be aware of what can and can’t be claimed so that you don’t lose out.

 

Background

Historically, buy-to-let landlords have been able to opt for either a “wear and tear allowance” or, by HMRC concession, the “renewals basis”.

  • Under wear and tear, the landlord simply claimed a 10% of the net rent as a deduction to cover the cost of replacement of items in the property.  However, this was only available for properties let fully furnished.
  • Under the renewals basis, the landlord would be allowed a deduction for replacement items of furniture, but the first purchase was disallowed.  This relief was available on all properties and was therefore advantageous where a property was not let fully furnished. This concession was removed after 6 April 2013; however, landlords could still, by statute, claim a deduction for replacement ‘tools’. In the context of property letting ‘tools’ would include cutlery, crockery, cushions, bed linen etc. but not carpets, sofas, beds or free-standing ‘white goods’.

 

New rules

From 6 April 2016, the Wear and Tear Allowance and the renewals allowance will be replaced by a NEW relief which allows all landlords (including unfurnished, part furnished and fully furnished) to deduct the costs of replacement furnishings in a property.  The relief will NOT be available for the initial cost of furnishing the property. The new relief will cover the capital costs of replacing items such as:

  • Moveable furniture of furnishings e.g. beds and sofas
  • Fridges and freezers
  • Carpets and floor coverings
  • Crockery or cutlery
  • Curtains and bed linen

Fixtures integral to the building, such as baths, fitted kitchen units and boilers which are not normally removed by the owner when the property is sold are NOT included.  However, the replacement cost of such items would normally be a deductible expenses as a repair to the property itself.  General repairs such as painting will still be allowed as a deduction from rental profits.  Landlords who typically have low repairs and maintenance costs who will have benefited from the 10% wear and tear allowance may find that this change increases their tax.

If you have any queries regarding any of the above do not hesitate to contact your normal Forbes Dawson contact.

 

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