Announced in the Summer, Budget George Osborne stated that from April next year (2016) the Wear and Tear Allowance, which currently gives landlords a 10% allowance against rental profits, regardless of any actual expenditure or costs, will be replaced with a tax relief only against actual costs incurred replacing furnishings.
HMRC is asking for the views of landlords and letting agents on the proposed changes, before they are implemented.
Announcing the scope of these changes HMRC has produced an 11-page consultation document – see link below.
Currently the wear and tear allowance applies only to those landlords who let properties which are fully furnished, so there is no wear and tear allowance for unfurnished lettings. In future, a replacement only allowance will apply to all lettings, including those which are part-furnished.
Although the allowance will apply to replacement furnishings it does not apply to initial purchases, when furnishing a new letting. Similarly, the relief does not apply to furnished holiday lettings businesses or commercial lettings, as they receive Capital Allowances relief.
Under the new replacement furniture relief, landlords of residential lettings will be able to claim for the cost of replacing the furniture, furnishings, appliances and kitchenware provided for the tenant’s use.
Items which are fixtures and integral to the building, not normally removed if the property is sold, would come under deductible expenses as a repairs to the property itself, as is currently the case.
This change will remove the need to decide whether a replacement item is a fixture or not as either way the cost can be deducted from the rental income to arrive at the profit figure.
Details of the scope of the changes and the consultation process are in the HMRC document – see here
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HMRC starts consultation on Wear-and-Tear Allowance – http://t.co/I9Xj5OiPPL
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