By Andy Noton
Following on from my first property blog after the Summer Budget about the changes to tax relief on finance costs, I thought I should also write about the second measure that was announced: the scrapping of the wear and tear allowance from April 2016.
Wear and tear allowances give most landlords of residential property a deduction equivalent to 10% of their rental income on their profit, to cover the cost of renewing and replacing furniture on furnished lets.
Landlords could opt to claim the actual costs of renewing and replacing furniture but in almost all cases the wear and tear allowance was far more beneficial than claiming the actual cost of replacements. It is hard to argue against the fairness of this change as the relief gave landlords a deduction for a cost they usually hadn't incurred and provided no incentive for landlords to renew or replace worn out furnishings.
Overall, these changes are likely to further increase the cost of being a private landlord. For landlords with £100,000 of rental income the removal of this allowance could increase their annual tax bill by £4,500 if they are an additional rate taxpayer.
To discuss this issue in relation to your own circumstances, or to speak about any other property tax or accountancy matter, email me or call on 020 7490 7766.