Changes to the way in which landlords deduct costs for replacing furniture and fittings in rented properties from 6 April 16:
Who is likely to be affected
Companies, individuals and others, such as trusts or collective investment schemes that let residential properties.
General description of the measure
The Wear and Tear Allowance for fully furnished properties will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.
The relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.
The measure will have effect for expenditure incurred on or after 1 April 2016 for corporation tax payers and 6 April 2016 for Income Tax payers.
Current law providing for the Wear and Tear allowance is contained in sections 308A, 308B and 308C of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) for Income Tax and at sections 248A, 248B and 248C of the Corporation Tax Act 2009 (CTA 2009 for Corporation Tax).
Legislation will be introduced in Finance Bill 2016 to repeal the Wear and Tear Allowance provisions and make new provision for a deduction for the replacement of furnishings.
The deduction will be available in calculating the profits of a property business which includes a dwelling-house. The deduction is available for capital expenditure on furniture, furnishings, appliances (including white goods) and kitchenware, where the expenditure is on a replacement item provided for use in the dwelling.
The amount of the deduction is:
- the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent) plus
- the incidental costs of disposing of the old item or acquiring the replacement less
- any amounts received on disposal of the old item
This deduction will not be available for furnished holiday lettings because capital allowances will continue to be available for them.
Considerations – previously payments towards white goods, such as fridges and freezers for rented properties did not gain any tax relief; the only allowance available was the wear and tear allowance. We believe this is a good change, as it encourages landlords to replace items in rented properties and also gives the fair amount of tax relief for this expenditure.
One area of caution is that the new relief from 6 April 16 is available on replacement of items, not on new items purchased.
Please feel free to ask us any questions you have about the changes.