Other tax issues affecting residential landlords
The removal of the 10% ‘Wear & Tear Allowance’ & the ‘statutory renewals basis’, and the introduction of ‘Replacement of domestic items relief’
From 6.4.2016 tax relief based on the old ‘Wear & Tear Allowance’ is withdrawn, as is any tax deduction on the ‘statutory renewals basis’.
The Wear & Tear deduction was broadly calculated as 10% of rental income, and was available regardless of actual expenditure. It was given to allow landlords a deduction for costs incurred when furnishing a property that would not otherwise have been tax deductible – e.g, moveable furniture or furnishings, white goods, carpets and curtains, linen, crockery and cutlery.
Alternatively, landlords could have used the ‘statutory renewals basis’ and would have claimed a deduction for actual expenditure on the replacement of tools used for the purposes of the property business.
It was not possible to claim both reliefs and HMRC's view on what qualified as a statutory renewal was very restrictive, so this option was unlikely to be favoured if the landlords properties were furnished.
The new relief for ‘replacement of domestic items’ is very similar to the ‘non-statutory renewals' basis (which applied in 2012/13 and previously), and allows a revenue deduction for the net costs of replacing:
- moveable furniture or furnishings, white goods, carpets and curtains, linen, crockery and cutlery etc. (similar to Wear & Tear Allowance),
- fixtures – e.g, integral parts of the building such as a new kitchen or bathroom, where the replacement can be regarded as a ‘repair’ and there is no ‘improvement’,
provided all the following conditions are met:
a) the taxpayer carries on a residential property business
b) the ‘domestic’ item is provided for use in the residential accommodation, and it replaces the old item, and is provided solely for use by the lessee (so no private use for the landlord)
c) the expenditure is capital expenditure, incurred wholly and exclusively for the purposes of the property business
d) the expenditure does not qualify for relief under the capital allowances rules
Owners of furnished holiday lets and rent a room properties do not qualify.
To maximise allowable deductions on any extensive renovation works you should consult so that you can plans things is such a way as to ensure that your expenditure meets the qualifying conditions and you retain supportive records to demonstrate your case.
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