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Changes to Wear and Tear Allowance

Oct 30, 2015

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By Lyndsey Hall

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Amongst the many changes, both good and bad, for landlords in the Summer Budget, the government announced that the wear and tear deduction allowed against residential letting income will be scrapped next year.

The allowance currently means landlords of furnished properties can claim back 10 per cent of their annual rental income. However, this is due to be replaced in April 2016 by a tax relief for replacing furnishings; meaning rental property owners will only be able to claim against purchases of new furnishings.

Whilst the current wear and tear allowance offers relief even when little to no expenditure has been incurred, it also means landlords who spend a much higher amount on furnishings are having their relief capped at 10 per cent of their income; meaning some could be losing out. It also means that relief is much higher for those with higher rental incomes; therefore, very similar properties in different parts of the country, such as London and the North, will receive very different amounts of relief even if expenditure has been the same.

The new relief will apply to furnished, part furnished and unfurnished properties, however it will not apply to ‘furnished holiday letting’ (FHL) businesses, and you won’t be able to furnish your new rental property from the outset for free: it will only apply to replacement of furnishings.

Landlords will be able to claim a deduction for the capital cost of furniture, furnishings, appliances and kitchenware, such as:

  •  Movable furniture or furnishings, like beds and sofas
  •  TVs
  • Fridges and freezers
  • Carpets and floor-coverings
  • Curtains
  • Linen
  • Crockery and cutlery

Fixtures will continue to be a deductible expense as a repair to the property itself. Fixtures include:

  • Baths
  • Sinks
  • Toilets
  • Boilers
  • Fitted kitchen units

The new format is intended to make the allowance fairer for all rental property owners, preventing the minority who might abuse the scheme from being able to. The allowance will only cover like-for-like replacement and not upgrades or improvements, for example, if a landlord replaces a washing machine with a new washer-dryer, and to buy the same washing machine again would have cost £400 but the washer-dryer costs £600, the replacement furniture relief will only be £400.

The new allowance comes into effect on 5 April 2016 (1 April if your business owns the property), so it is worthwhile waiting until then to replace any furnishings, as you’ll still receive your wear and tear allowance for furnished properties up until this date, and you should be able to make a claim on your purchases under the new allowance; increasing the amount of tax deduction you’ll receive.

For more information about the replacement of the wear and tear allowance check out the GOV.UK website.

Landlords: what do you think of the new tax relief? How will the change effect your rental business? Let us know in the comments, or on Facebook and Twitter.

 

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