Please Note: This Article is 3 years old. This increases the likelihood that some or all of it's content is now outdated.

The Government has now confirmed there will be a major change to Wear & Tear allowances after post Summer Budget consultation process which produced 170 responses.

HM Revenue and Customs (HMRC) has now published the responses it has received to its 12 week consultation on changing the Wear and Tear Allowance for buy to let landlords.

The outcome is that the government is going ahead with replacing the current nominal 10% annual Wear & Tear Allowance for furnished only accommodation. This will now become a with a like for like expenses claim regime for all replacements in all renal properties, the same as scheme operated for holiday let businesses.

HMRC’s summary of the consultation responses admits that “many respondents expressed support for maintaining a Wear and Tear Allowance, principally because they saw it as simple” but “a significant number of stakeholders agreed with the Government that the Wear and Tear Allowance was not fair, both as it only applies to landlords of fully furnished properties and because it provides relief where no expenses have been incurred.”

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HMRC says its aim is to minimise complexity in the way the allowance is administered in future.

There are no plans to provide any transitional arrangements, but HMRC has said that in future the allowance will “include the cost of disposing of old assets”.

There will now be eight weeks of consultation on this draft legislation.

The Association of Taxation Technicians (ATT) has welcomed the publication of draft legislation (1) changing how residential landlords obtain tax relief on expenditure on replacement furnishings.

The provisions will mean that all residential landlords can obtain tax relief on the actual amount of their replacement expenditure on items such as furniture, furnishings, household appliances and kitchenware.

The final version of the provisions will be included in Finance Bill 2016 and they will come into effect at the beginning of April 2016.

Michael Steed, President of the ATT, said:

“The draft provisions have been written in a very straightforward way. Their meaning is clear and they are easy to follow. As is often the case, there are some points requiring clarification and we will focus on these in our response to HMRC.

“One point that we are very pleased to see in the draft provision is the recognition that far from the old item having any disposal value, a landlord will often have to pay to get it taken way. The ATT had made this point when responding to the consultation earlier this year. The point is particularly true in relation to old fridges, mattresses, etc. That additional cost is now specifically allowed for in the draft provision.

“We certainly expect to be seeking guidance on how HMRC will approach the question of whether a new item is substantially the same as the old item which it is replacing.  If the new item is an improvement, which has to be treated for tax purposes as capital expenditure and not as a like for like replacement to be offset against rental income, the draft provision requires a restriction to the replacement expenditure. This position is particularly complicated in relation to items like ‘white goods’ where manufacturers are constantly introducing new technologies and functionality. We will be highlighting to HMRC the situations where we think that practical guidance will be needed to avoid disputed claims.

“Overall, we think that the new provisions have the potential to work much more satisfactorily than the current ones. We expect the response that we will be submitting to HMRC to assist the achievement of that potential.”

The provisions will apply equally for Income Tax and Corporation Tax purposes. For Income Tax, they will apply for expenditure incurred on or after 6 April 2016; for Corporation Tax, they will apply from 1 April 2016

More Information on the Letting Expenses Tax Changes here:

(1) Reform to the Wear and Tear Allowance – Summary of responses here

(2) Replacing Wear and Tear Allowance – consultation responses here

(3) The draft provisions are contained in a schedule to Draft Clause 40. The draft legislation and an Explanatory Note here

(4) The Association of Taxation Technicians is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. The ATT response to the 2015 Consultation here

Please Note: This Article is 3 years old. This increases the likelihood that some or all of it's content is now outdated.
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