By Clare Munro, Tax Partner
Amongst the changes to taxation of property income announced last year was abolition of the 10% wear & tear allowance. Landlords of furnished residential property will be aware that they currently get a tax deduction equal to 10% of their rental income. There are a few restrictions but in general this allowance has been available whether or not the landlord actually spends any money on renewing furnishings.
However, from 6 April 2016 the wear & tear allowance will be consigned to fiscal history. Landlords in future will only be eligible for relief on furniture renewals to the extent that they actually lay out money on them. There will be some limitations. In particular, the new relief will be for replacement furniture which means that the initial cost of furnishing a property will not be allowable. Further, if the new furnishings include an element of improvement on the old, that will be regarded as capital expenditure and will be disallowed. To minimise uncertainty HMRC are to provide comprehensive guidance on this. As in the past, capital allowances will not be available for residential property either.
The tax position on repairs, including replacement of items like toilets or basins, which are fixed to the building itself, is unchanged. The new policy therefore aligns the treatment of replacement furniture with the existing repair treatment for fixtures.
The planning point for landlords is to consider the timing of proposed refurbishments carefully over the next few weeks. Money spent now on repairs, including like for like replacements of fixtures, should be deductible. However, expenditure on any replacement furniture should be postponed until after 5 April when relief will be available in full, rather than making those purchases now when there will be no relief.
For further information and to discuss how these issues could affect you, please contact me.