HM Revenue & Customs (HMRC) has clarified the tax treatment of fixtures and fittings in residential letting properties.
In a letter to the Chartered Institute of Taxation, HMRC has laid out how tax relief of furnished and unfurnished properties is expected to work.
HMRC policy and technical specialist Jas Bhanghu explains that the renewals allowance now has a ‘very limited application’.
“This would relate to short-life items like crockery and rugs that a landlord might expect to replace every year or so,” writes Bhanghu.
“However, the allowance does not apply to carpets or higher value items that landlords would not expect to replace that often. However, relief for this expenditure is available as a revenue expense.”
He also clears some of the issues confusing landlords over white goods.
“Washing machines, fridges and the like are not covered by the renewals scheme. They are capital items, but HMRC accepts where they are integrated appliances they would be deductible as a repair when replaced.
“Free standing white goods are not capital items and capital allowances are not available for furniture and household equipment provided for use by tenants in residential property.”
HMRC also explained that the 10% wear and tear allowance remains unchanged – but only applies to a buy to let or house in multiple occupation (HMO) let with enough furniture, furnishings and equipment that makes the property available for normal residential use.
The wear-and-tear allowance is deducted as 10% of net rents – that’s rent charged less services paid by the landlord that the tenant would generally pay for, like utilities.
The claim can be made regardless of whether any replacements or renewals have occurred during the year.
HMRC is also promising to review the impact of the changes on landlords.
Read the full HMRC guidance letter on renewals and wear and tear allowances