Prior to 6 April 2013, Landlords of fully furnished properties had a choice of reliefs when it came to replacing items of furniture or equipment, either claim an annual wear and tear allowance (being 10% of net rents) or the renewals basis. If the property was not fully furnished, perhaps containing only kitchen appliances, the renewals basis was the only option for relief on these items.
The renewals allowance worked on the basis that there was no deduction from rental profits for the first purchase of a piece of furniture, but when the item needed to be replaced, the cost was allowed in full. If a Landlord of an unfurnished property provided white goods in the kitchen, there would be no relief for the initial expense on these items, however if the goods needed to be replaced, this would be an allowable deduction.
From 6 April 2013, the only relief available to Landlords is the wear and tear allowance, but this can only be claimed for fully furnished properties. Therefore Landlords of partly furnished properties cannot claim relief for the cost of replacing items such as cookers, fridges, dishwashers and so on.
Built-in appliances are regarded as fixtures and so are dealt with under the normal rules for fixtures, for example replacing a fixture without improving it beyond its original condition is allowable. However, no alternative deduction exists for free-standing appliances such as fridge-freezers, or for carpets or curtains. Although smaller items replaced on a more regular basis, such as crockery and cutlery would be deductible.
Following the submission of the 2013/14 tax returns, the Residential Landlords Association surveyed their members and found over 75% were unaware of the removal of the renewals basis. Also, due to the lack of tax relief in partly furnished properties, more than half confirmed the changes would affect the frequency of replacing such items in the future.
In order to be eligible for the 10% wear and tear allowance, Landlords may wish to consider fully furnishing properties, but if in any doubt as to what may be deductible in partly furnished properties please contact your local Perrys office.
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