How do recent changes to the Wear and Tear Allowance affect landlords?
Landlords will soon be completing their annual tax return and they could, for the first time, be claiming relief under the new ‘Tax Relief for Replacing Furnishings in Let Residential Dwelling Houses’, a new relief which replaces the Wear and Tear allowance. Previously, landlords could claim an annual allowance of 10% of the rent received for wear and tear – even if no repairs or work had been carried out. Now landlords can no longer claim this Wear and Tear allowance but can instead claim a deduction for the actual capital costs of replacing furnishings and appliances in the property that are for the tenant’s use.
This new relief applies to the cost of replacing furniture, appliances and kitchenware such as sofas, beds and other furniture, TVs, fridges, freezers, carpets and floor coverings, curtains, crockery, cutlery and linen. The replacement cost of fixtures which are integral to the building such as baths, toilets, washbasins, boilers and fitted kitchen units remain a deductible expense as previously. Both the replacement of both fixtures and furnishings can now simply be deducted from rental income to calculate profit. The new relief doesn’t cover the cost of furnishing the property initially and it doesn’t cover the cost of improving or enhancing an item, simply replacing it.
The relief cannot be claimed without any actual expenditure but it now reflects the actual cost of replacing an item, rather than a fixed 10%. Landlords who like to keep their property in good condition, regularly replacing worn or broken items, will now find they can deduct the true cost of replacing items which may be greater than the flat rate of 10% that they could previously claim.
But landlords must keep all receipts for replaced items to make it simple to calculate their costs which can then be deducted from their rental income.
Benham and Reeves Residential Lettings