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Wear and tear tax allowance changes – what landlords can claim

Monday 07 December 2015

Controversial plans to scrap the wear and tear allowance in favour of a new replacement relief scheme will benefit more landlords than ever before, statistics show.

The Government's reform is designed to give greater consistency and fairness' across the residential property letting sector and reduce the number of tax rules applying to the residential property sector. 

Under the current scheme property owners who let out fully-furnished homes can claim an annual allowance of 10 per cent of the rent they receive to cover any wear and tear on the fixtures and fittings – an allowance which those who rent out partially-furnished or unfurnished properties are currently excluded from. 

But under the new plans, all three types of landlord – those with fully, partially and unfurnished properties - will be eligible to deduct the costs they actually incur on replacing furnishings in the property.

More landlords will benefit from changes

Research has shown that just under a quarter of landlords across the country let fully-furnished properties, meaning significantly more will benefit.

However, there is clearly some anger among those dealing solely in fully-furnished lettings who feel they could be left out of pocket.

The proposal paper also admits the changes will create an ‘additional administrative burden' for those already claiming the wear and tear allowance because they will need to keep a record of their expenditure. 

Combined with other sweeping changes, including the removal of interest relief on mortgages over a sliding scale four-year period, it has led to tens of thousands signing a petition to see the plans ditched.

But Chris Norris, of the National Landlords Association (NLA), said: "We fully understand the frustration of those landlords who let exclusively on a furnished basis as the removal of this allowance will very likely represent a reduction in the relief they can claim.

"However, it will come as a welcome revision for those letting a mixed portfolio, unfurnished, or part-furnished property as the replacement system will allow them to deduct legitimate revenue expenses in the future.

"The NLA has broadly welcomed these proposals as it should lead to a fairer system for more landlords.

"However, as we transition from one system to another, we will push to make sure that any landlords who have made recent investments with the expectation of offsetting the cost over a number of years using the current allowance will not be disadvantaged."

The new proposals, which form part of Chancellor of the Exchequer George Osborne's summer budget, could come into force by April 2016.

Building fixtures not included in the allowance

Under the new replacement furniture relief, landlords will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for their tenant's use.

This includes movable furniture or furnishings such as:

  • beds or suites

  • televisions, fridges and freezers

  • carpets and floor-coverings

  • curtains and linen

  • crockery or cutlery

  • beds and other items of furniture

Fixtures integral to the building that are not normally removed by the owner if the property was sold would not be included because the replacement cost of these would, as now,  be a deductible expense as a repair to the property itself.

This includes baths, washbasins, toilets, boilers and fitted kitchen units.

The reasons are explained in HM Revenue and Customs’ consultation proposal, and read: "We believe that limiting the scope of the allowance to items that are provided for the tenant’s use in the dwelling house that is being let removes any opportunity to claim the cost of larger items used for the purpose of the property rental business, for example, cars."

While it will allow a greater number of landlords to claim, it will not apply to furnished holiday letting businesses (FHLs) and the letting of commercial properties, because these receive relief through the Capital Allowances regime.

The 2015 Finance Bill has undoubtedly rocked the foundations of the buy-to-let market, leaving many landlords horrified at the prospect of paying tax on income they do not have.

Many feel persecuted by the Government and question its motivation but let’s not forget that under the old system of wear and tear allowances three-quarters of the landlord sector were left out in the cold.

To find out more about how the changes will affect you read HMRC’s consultation document by clicking here

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