From April 2016 new rules are in place which align tax reliefs on the replacement of furniture available to landlords of residential property, be it furnished or unfurnished. This takes us back to the rules in place in 2013 before HMRC made changes which confused everyone.
The past and the future
Until 2013 landlords could claim the cost of ‘renewing’ furniture, carpets, curtains, white goods etc. as an expense against rent. Incidental costs of acquiring the new asset or replacing the old were also allowed. Any proceeds from sale of the old item were deducted from the replacement claim. In other words it was the net cost of replacement which was allowable against tax.
The original cost of the furnishings bought when the property was first fitted out were not allowable, only the replacement.
Replacement assets had to be substantially the same as the old item, there was no tax relief for an improvement. An example being replacing a washing machine with a washer dryer, only the cost of replacing with another washer would be allowable. It is often the case that HMRC allow the “nearest modern equivalent”, (similar to the concept of replacing single glazing with double glazing). Evidence may have been needed for your accountant to argue this point with HMRC.
In 2013, HMRC announced that landlords could no longer claim the above ‘renewals’ relief, and tax relief on these costs effectively fell into a black hole. This was viewed by many as unfair as for those landlords who let their properties fully furnished, they could claim the 10% ‘wear and tear’ allowance every year regardless of any expense actually being incurred. This gave furnished property landlords a tax allowance for replacement of furnishings whilst landlords of unfurnished or partly furnished lets could claim nothing at all.
Furnished and unfurnished aligned under one rule
From April 2016 the ‘wear and tear’ allowance rules are abolished and all landlords of residential property lets, be they furnished or unfurnished, will use the ‘renewals’ basis rules as above – the same as we had before 2013. Although commercial property and furnished holiday lets continue to have their own rules.
As you can see, the tax rules around residential property lets can prove a minefield for any individual with either 1 or a large portfolio of property.
At Wright Vigar we have a team of technically qualified experts who are able to advise you on the best solution for you.
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