LANDLORDS of residential property may have found they have paid more tax following the April 2013 abolition of the ‘renewals basis’ for claiming relief on certain furniture and fittings.
For landlords of unfurnished property the renewals basis was the only means of claiming tax relief for capital items i.e.
LANDLORDS of residential property may have found they have paid more tax following the April 2013 abolition of the ‘renewals basis’ for claiming relief on certain furniture and fittings.
For landlords of unfurnished property the renewals basis was the only means of claiming tax relief for capital items i.e. the landlord did not receive relief for the original cost of fitting out the property but the cost of replacement of, say, a broken washing machine would have qualified as an allowable expense.
Landlords of furnished residential property, however, have been able to continue claiming an annual ‘wear and tear’ allowance to reflect the depreciation on furniture and fittings. To qualify as a furnished let the landlord has to make the property habitable by the provision of, for example, beds, tables, chairs etc. so that the tenant can move in providing only clothing and food. Prior to April 2013 these landlords had the choice of either claiming the ‘wear and tear’ allowance (calculated at 10 per cent of rents receivable) or the renewals basis. Most opted for the former.
The differing rules have caused confusion for landlords trying to prepare their rental accounts and agree their income tax positions with HMRC.
In the 2015 Summer Budget the Government announced that they would consult on measures to improve how rental businesses are taxed and have proposed that the wear and tear allowance will be replaced by a single relief so that landlords will be able to deduct the cost of replacing all furnishings and fittings in a property. The new rules would apply to all landlords of unfurnished, furnished and part furnished property with effect from April 2016.
Under the proposals the initial cost of furnishing a property will continue not to be tax relievable but the cost of replacing items in the property will be, including, amongst other things, televisions, fridges and freezers, carpets and floor coverings and beds.
Fixtures integral to the building, for example, boilers, fitted cookers, kitchen units wilt continue to attract tax relief on their replacement because these costs constitute repairs to the building.
Therefore, landlords who are considering the replacement of furniture and fittings might wish to consider delaying this until after April next year.
These proposals do not affect landlords of qualifying furnished holiday accommodation and commercial property because they receive their relief through a different system of depreciation allowances.
For more information on this please contact Keith Weston at or ring him on 01536 514871.