The wear and tear allowance – what you need to know as a landlord

Landlords’ “wear and tear” allowance was abolished with effect from 6 April 2016. The legislation specifically excludes any claim for capital allowances on “plant” (purchased for initial installation) used within a dwelling house (which includes flats and apartments).
The wear and tear allowance was therefore designed to provide tax relief for the cost of replacing existing furniture and fittings provided the dwelling house was let fully furnished.

The allowance was set at 10% of the rental income net of expenses, such as water rates and council tax. This was available irrespective of whether any domestic items had been replaced during the year. However, if actual costs exceeded 10% of rent, relief on the excess was not available.

HM Revenue & Customs (HMRC) considered wear and tear to be too generous and a new “replacement” allowance has therefore been introduced. This provides a tax deduction for the actual costs incurred after 5 April 2016 in replacing “domestic items”, including furniture, appliances and kitchenware. In contrast with “wear and tear”, the replacement allowance is available whether the dwelling house is let furnished or unfurnished.

If you are considering buying an empty property and furnishing it from scratch, you will not receive any tax relief for the initial cost of the furniture, since relief is only given when the items are replaced. If, however, you buy an existing buy-to-let property with worn out furniture, you can obtain a tax deduction for the costs of replacing the old items on a like-for-like basis. It is therefore crucial for landlords to keep an on-going inventory of items placed in their property.

If you would like further advice on the type of domestic items whose replacement costs attract relief, or guidance on how to keep a log of your inventory, please speak to your usual contact or send us an email enquiries@buzzacott.co.uk.

This article was taken from the Autumn 2017 issue of the Private Client team's Quarterly Tax Digest. You can access all the other articles here.
Use of Cookies

Like most websites Buzzacott uses cookies. In order to deliver a personalised, responsive service and to improve the site, we remember and store information about how you use it. This is done using simple text files called cookies which sit on your computer. These cookies are completely safe and secure and will never contain any sensitive information.

×