Rental income – tax relief for furnishings

The way in which tax relief is given for the cost of replacing furnishings in rental properties is changing with effect from 6 April 2016 and careful planning can increase the tax relief you are entitled to.

CURRENT POSITION – FURNISHED LETTINGS

The current law is that landlords of furnished lettings are entitled to claim a wear & tear allowance to cover the cost of replacing furnishings. The allowance is calculated as 10% of rents (net of any charges and services that are normally paid by the tenant but which are met by the landlord, such as council tax and water rates) and therefore has no relation to the amount actually spent.

There is no statutory definition of “furnished property” for tax purposes, but HMRC’s own manuals define furnished property as “…. one that is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and other furnishings, cooker etc. The provision of nominal furnishings will not meet this requirement….”

CURRENT POSITION – UNFURNISHED OR PARTLY FURNISHED LETTINGS

The wear and tear allowance only applies to fully furnished property, and prior to 6 April 2013 landlords of part-furnished properties could claim tax relief for the cost of replacing furnishings under an Extra Statutory Concession. Following the withdrawal of the concession in 2013 where a property is let with, for example, only white goods provided no allowance is normally available for the cost of replacing those white goods. There are limited circumstances in which the costs of replacing “built-in” white goods may qualify for tax relief.

NEW RULES – FROM 6 APRIL 2016

From 6 April 2016 the 10% wear and tear allowance is abolished. Landlords will instead be entitled to claim a deduction for the actual costs incurred in replacing furnishings, however no allowance is given in respect of the cost of the initial furniture.

The new relief will cover the capital cost of replacing items provided for the tenant’s use in the property, such as:

• movable furniture or furnishings, such as beds, tables, chairs etc;
• televisions;
• fridges and freezers;
• carpets and floor coverings;
• curtains;
• linen;
• crockery or cutlery.

Fixtures integral to the building, such as baths, fitted kitchen units and boilers, which are not normally removed by the owner when the property is sold, are not included. This is because

the replacement cost of such items would, as now, be a deductible expense as a repair to the property itself.

Planning tip:

If you are about to replace any furnishings in your rental property delay doing so until after 5 April 2016 as this will increase the tax deduction you are entitled to.

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