While the scrapping of higher rate finance interest relief has led to a furore among landlords, a major update to claiming wear and tear allowance has slipped by almost unnoticed.
A new consultation announced by HM Revenue & Customs (HMRC) proposes to scrap the 10% wear and tear allowance.
The replacement will be a claim-as-you-go allowance that lets landlords recoup the cost of replacing appliances and furnishings in a rental home.
But the big change is the new relief will apply to all residential buy to let homes, while the old relief was only allowed for fully-furnished properties.
Furnished holiday lets and company lets are excluded as they can claim replacement costs under the capital allowances regime.
The new relief covers the replacement of any furniture, furnishings, appliances and kitchenware provided for a tenant, such as:
- Portable furniture or furnishings, such as beds or sofas,
- Fridges and freezers,
- Carpets and floor-coverings,
- Crockery or cutlery,
“We believe that limiting the scope of the allowance to items that are provided for the tenant’s use in the dwelling house that is being let removes any opportunity to claim the cost of larger items used for the purpose of the property rental business, for example, cars,” says the consultation document.
Costs of fixtures not normally removed by the owner if the property is sold are not included under the new measure because any replacement cost is a repair.
Fixtures include items such as:
- Baths, showers and wash basins
- Fitted kitchen units
“Landlords will no longer need to be concerned with whether the item being replaced is a fixture and therefore a repair to the property or not. In either case, the cost can be deducted from their rental income to arrive at the profits of their property rental business,” says the document.
Landlords will no longer need to decide whether their property is sufficiently furnished to claim the new replacement furniture relief, as they had to when claiming the Wear and Tear Allowance. This is because the new relief will apply to all landlords of residential dwelling houses, no matter what the level of furnishing.”
If the replacement item is an improvement, only the replacement cost will be claimed under the new wear and tear relief.
HMRC gives the example of a washer dryer costing £600 is bought, but the cost of buying a new washing machine like the old one would have been £400 then the replacement furniture relief would be £400.