The HMRC has revealed their proposals to change the current system, whereby landlords can currently claim 10% Wear and Tear Allowance on a fully furnished property regardless of if they have actually incurred any costs. From April 2016 they are proposing that this system be scrapped and landlords are able to claim the actual costs incurred instead, regardless of if it is fully furnished or part furnished/unfurnished, meaning that landlords will be able to claim for the full replacement costs of appliances. They will not be able to offset the cost of any improvement – so if a washing machine is replaced by a washer dryer – only the cost of a washing machine can be offset. The cost of the first appliance to go in and when a property is first furnished can also not be claimed for – it is only the replacement costs that can be offset.
The government are inviting comments in their consultation process, the full document and details of how to comment can be found here:
This is good news for those with part furnished and unfurnished properties, as landlords no longer have to decide whether their property is sufficiently furnished in order to be eligible for the relief, and owners of unfurnished properties will benefit from being able to claim for replacement appliances at last. However landlords of fully furnished properties in very expensive areas will be the biggest losers here, as on a rental of £3,500 per month they will currently have been able to claim £4200 per annum relief regardless of if they actually had to replace anything. In comparison to the replacement cost of a Bosch washer dryer for example at £650 and a few other expenses, this is not going to be welcome news! For the landlord of a studio flat rented at £850 per month, who would have claimed £1020 per annum previously, it’s a much more beneficial proposition.
Important details from the consultation document:
“The relief will apply to landlords of unfurnished, part furnished and furnished properties.
“The relief will not apply to ‘furnished holiday letting’ businesses (FHLs) and letting of commercial properties, because these businesses receive relief through the Capital Allowances regime.
“The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included.
“Under the new replacement furniture relief landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:
– movable furniture or furnishings, such as beds or suites,
– fridges and freezers,
– carpets and floor-coverings,
– crockery or cutlery,
– beds and other furniture.
“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.
“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. Fixtures include items such as:
– fitted kitchen units.
“Landlords will no longer need to be concerned with whether the item being replaced is a fixture (and therefore a repair to the property) or not. In either case, the cost can be deducted from their rental income to arrive at the profits of their property rental business.
“Landlords will no longer need to decide whether their property is sufficiently furnished to claim the new replacement furniture relief, as they had to when claiming the Wear and Tear Allowance. This is because the new relief will apply to all landlords of residential dwelling houses, no matter what the level of furnishing.”