Greater clarity on furnishings and letting expenses tax relief can avoid difficult disputes, urges tax body AAT.
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 current rules only apply to properties that are fully furnished and give a deduction for a notional amount of expenditure regardless of the landlord’s actual expenditure.
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 (2)
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 (3). 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 advance publication of draft legislation is intended to provide an opportunity for comments to be made to HMRC on how provisions might be refined. The ATT is always pleased to contribute suggestions on relevant issues and considers that this is an important way to ensure that legislation is fit for purpose.
The ATT will be submitting a detailed response to HMRC in the New Year.
1. The draft provisions are contained in a schedule to Draft Clause 40. The draft legislation and an Explanatory Note here
2. 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
3. The ATT response to the 2015 Consultation here
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.