Landlords’ replacement wear and tear allowance

Capital allowances are not available for expenditure on furniture and furnishings for use in dwelling houses. However, until 5 April 2016 (1 April 2016 for corporation tax) a deduction for wear and tear may be claimed (known as a ‘wear and tear allowance election’), equal to 10% of the ‘net rents’ from furnished lettings (ie after deducting payments that would normally be borne by the tenant, such as water rates). In addition, a deduction may be claimed for replacing fixtures that are an integral part of a building (eg central heating systems), but excluding additional expenditure on ‘improved’ versions of those items. However, replacing single glazed windows with double glazed units is treated as allowable repairs and not disallowable improvements.

Many flats are let unfurnished due to the difficulties of complying with fire safety legislation.

In relation to expenditure incurred on or after 1 April 2016 (for corporation tax) and 6 April 2016 (for income tax), the former wear and tear allowance for fully furnished properties will be replaced with a relief enabling all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.

The new 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 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 as capital allowances continue to be available for them.

Note also that the renewals allowance for tools (under ITTOIA 2005, s 68) will no longer be available for property businesses from the same date.

News / Blog

13th
December

Autumn Budget 2017 – Business Tax Implications

Since the budget statement in November, a number of further details have been released. This week, we have a look…

5th
December

Review of the Budget – 2 Weeks On

It’s been two weeks since the Autumn Budget. Our initial reactions remain the same, but with more information published in…

30th
November

Cloud Accounting – Soon To Be A Necessity For All Businesses

There are a number of implications for Stockport small businesses that came out of last week’s budget. We will be…

22nd
November

Autumn Budget 2017 – Initial Reactions for Small Business

The Autumn budget is out. The Chancellor of the Exchequer, Philip Hammond MP has delivered his Autumn Budget 2017 speech…