Out with renewals, in with wear and tear relief.

Out with renewals, in with wear and tear relief  

For owners of furnished residential property lets there have been two main routes of tax relief available for items such as cookers, tables, curtains etc. the 10% Wear and Tear Allowance and the Renewals basis.

HMRC have announced that from April 2013, the Renewals Allowance will no longer be available. The allowance worked on the basis that you cannot have a deduction for the first purchase of an item of plant, so when fitting out a new rental property, there is no deduction for buying, say, a cooker. When the cooker needs replacing however, the cost of the replacement can be claimed as a “renewal”.

From now onwards, the only relief available to residential landlords will be the “wear and tear allowance”, being a deduction of 10% of net rents against rental income, and this can only be claimed for fully furnished properties, so landlords of unfurnished residential accommodation will not be able to claim any relief at all for replacing such items as cookers, sinks, baths, and so on.

A furnished residential property is generally defined as one where the tenant can move in and live without being required to provide anything other than their clothing and food.  Hence the 10% wear and tear allowance cannot be claimed on unfurnished or partially furnished lets.

If you choose to claim the 10% wear and tear allowance, then the claim must be made against all fully furnished residential lets in your portfolio, you cannot pick and choose which properties to apply the claim against.

The advantages of the wear and tear allowance are that it is easy to calculate; it can be claimed each year regardless of the actual amount spent on replacing furniture etc. Also as it is linked to net rent, if rents rise, so too does the available deduction.

Practical Tips

The wear and tear allowance provides relief for the depreciation associated with moveable items of fixtures and furnishings. It does not cover items which are integral to the building, such as wash basins, kitchen units, central heating etc. A landlord is entitled to claim a deduction for the cost of replacing these items on a like for like basis.

When considering the 10% wear and tear allowance, it is vitally important that the property is classed as one which is ‘fully furnished’, landlords of unfurnished or partly furnished properties will not be able to claim any relief for replacement items.

Article as printed in the Retford Times 9 May 2013 – Author Neil Roberts.

Technical content correct at time of publishing.