HMRC consults on changes to wear and tear allowance

Under the current tax allowance system landlords and companies involved in letting furnished property can claim tax relief equal to 10% of the rent received to cover wear and tear.  Landlords can claim this relief whether or not any expense was incurred.  Only landlords letting fully furnished properties can apply for this relief. The Chancellor of the Exchequer announced a change to this system in the summer 2015 budget. From April 2016 the Wear and Tear Allowance will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property.

HMRC has opened a 12 week consultation process into the proposed new relief scheme. 

Scope of the new scheme

The new scheme will be available to landlords who rent out unfurnished, part furnished and fully furnished properties.  It will only apply to replacement items and not to the initial cost of purchasing furniture for a rented property. Landlords will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house. Fixtures, such as bathroom fixtures, fitted kitchens etc will not be included in this scheme, as the cost of replacing these items is already a deductible expense as a repair to the property. 

How much relief can landlords claim?

Rather than a percentage of rent charged, the relief will now equate to the replacement cost incurred by the landlord.  HMRC believes that this will encourage landlords to maintain their properties as they will not be able to claim any relief unless they can show that they have replaced an item.

Landlords will be expected to deduct any proceeds they get from disposing of the old asset from the replacement cost of the new item. 

As the relief does not apply to capital costs, items that are considered improvements will be excluded from the scheme.  The replacement will include an improvement if the new asset can do more or if it can be used to do something that it could not do before. For example, replacing a washing machine with a washer-dryer is an improvement. If the washer dryer cost £600, and the cost of buying a new washing machine like the old one would have been £400 then the replacement furniture relief will be £400.

Consultation questions

HMRC is looking for feedback on the new proposals.  The consultation questions ask for comments on the scope of the new relief, on the proposals outlining how much relief landlords will receive and for details of any impacts on individuals and businesses that have not been covered in the consultation document. 

The consultation closes on 9 October 2015.