On 17 July 2015 HMRC published a consultation document that outlines the changes to the way tax relief will be given for replacement of furnishings in let residential properties.
The present wear and tear allowance (10% of rents) has a number of inconsistencies:
- The allowance can be claimed even where the landlord incurs no actual replacement costs.
- The allowance is not available to landlords who let part furnished and unfurnished property.
- The allowance is restricted to 10% of rents even when actual replacement costs are higher.
To remedy these points HMRC are considering the following changes from April 2016. The following notes are reproduced from their consultation document:
Scope of the new replacement furniture relief
2.3 The relief will apply to landlords of unfurnished, part furnished and furnished properties. The relief will not apply to ‘furnished holiday letting’ businesses (FHLs) and letting of commercial properties, because these businesses receive relief through the Capital Allowances regime.
2.4 The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included.
2.5 Under the new replacement furniture relief landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:
- movable furniture or furnishings, such as beds or suites,
- televisions,
- fridges and freezers,
- carpets and floor-coverings,
- curtains,
- linen,
- crockery or cutlery,
- beds and other furniture
2.6 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.
2.7 Fixtures integral to the building that are not normally removed by the owner if the property was sold would not be included because the replacement cost of these would, as now, be a deductible expense as a repair to the property itself.
Fixtures include items such as:
- baths,
- washbasins,
- toilets,
- boilers,
- fitted kitchen units
2.8 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.
2.9 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.
The consultation will run from 17 July to 9 October 2015. We would be happy to forward to HMRC any ideas that landlord readers may have regarding this issue.