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 This increases the likelihood that some or all of it's content is now outdated.

The new tax rules on furniture could be a particular problem for flood-hit landlords, says the Association of Taxation Technicians (ATT)

The new rules concerning tax relief on expenditure by landlords when replacing furniture and other domestic items still need clarification. The AAT says, these need to be supported by detailed guidance from HMRC to avoid confusion. People who have been hit by recent flooding will be among those seriously affected.

The ATT’s comments are included in its response to draft legislation[i] published by HMRC. The new legislation[ii] introduced by the Summer Budget in 2015 is designed to give relief for the cost of replacing furnishings to a wider range of property businesses, as well as lead to a more consistent and fairer way of calculating taxable profits[iii].

These new rules, which will apply from April 2016, will permit a tax deduction for the cost of replacement furniture, for example, but, as drafted, the AAT maintain, “contain many terms which could create confusion”.

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HMRC has promised to publish guidance on certain aspects but ATT has highlighted other areas where clarity is needed.

Michael Steed, President of the ATT, said:

“In general, we welcome the new rules which are more logical than those they replace[iv] but if they are to work efficiently they need to be much clearer.”

In its response, the ATT has identified a range of detailed questions which landlords will need answers to before they have to apply the new rules. Examples of the type of question are noted below:

  • Will kitchen equipment qualify if it is provided for the general use of, say, three tenants who will live in a property despite the legislation stating “solely for the use of the lessee”?
  • Do the rules apply at all where the tenants do not have a formal lease?
  • Will replacement garden furniture qualify given that it is not provided for use “in the dwelling-house”?
  • Can a futon be a replacement for a bed, or a tumble-drier for a freezer or a bookcase for an old piano?
  • If a new item is a real improvement on the old item (because it has much greater functionality) but is  purchased second-hand, is the allowable expenditure limited to what would have been the brand new cost of a like-for-like replacement or is it restricted to the hypothetical second-hand cost of a straight replacement? And if the latter, what evidence does the landlord need to keep?

Michael Steed said:

“Questions like those we have identified are likely to arise for many landlords at one time or another. For someone who has to refurnish a whole house – for example because of the recent flooding – all these questions could come at once. It is vital that HMRC publish guidance before April so that there are some answers to the questions. The ATT would be pleased to assist HMRC in the preparation of clear guidance.”

The AAT www.aat.org.uk/ is a charity and the leading professional body for those providing UK tax compliance services.

[i] ATT’s response to the proposal can be found here

[ii] The wording for the draft provisions is here

[iii] See paragraph 32 of the published Explanatory Note here

[iv] The proposed new rules will apply in place of the existing wear and tear allowance. That currently permits a deduction in relation to furnished lettings of 10 per cent of the rent whether or not the landlord has incurred any expenditure. The new rule permits a deduction for the actual cost of the new item subject to certain conditions.  

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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