Property Letting and the new relief for replacement of domestic items

Up to 5th April 2016 (the 2015/16 tax year), as a landlord you were able to claim a 10% wear & tear allowance if you rented a furnished property. Not any longer…

THE NEW WEAR AND TEAR ALLOWANCE
The wear & tear relief came to an end on 5 April 2016 and from the start of the 2016/17 tax year, there is a new relief. The new relief – replacement of domestic items relief – is wider than its predecessor in that its application is not restricted to furnished lettings. The new relief is available in calculating the profits of a property business which includes a `dwelling house.’ This does not have to be a house – flats, apartments etc. also qualify. Importantly, it does not matter whether the dwelling house is let furnished or unfurnished. However, the new relief does not apply to furnished holiday lettings in respect of which capital allowances are available. In calculating the profits of the property rental business, a deduction is given for the capital expenditure on replacement furniture, furnishings, appliances and kitchenware.

THE CONDITIONS TO MEET
In order for the relief to be available, certain conditions must be met:

– the expenditure must relate to the replacement of a domestic item for use solely by the lessee in the let property;

– the old item must no longer be available;

– the expenditure is capital in nature and incurred wholly and exclusively for the purposes of the property business;

– capital allowances are not available in respect of the expenditure; and

– rent-a-room relief has not been claimed

ON A LIKE-FOR-LIKE BASIS
The amount of any deduction is the cost of the replacement item (on a like for like basis) plus any incidental costs of disposing of the old item, less any amounts received in respect of the sale of the old item. The replacement item must be substantially the same as the old item. Where the replacement is superior to the old item, the deduction is limited to the cost of an equivalent replacement.

EXAMPLE
Maisie has an investment property, which she lets out furnished. In 2016/17, she replaces the sofa at a cost of £500 and the fridge at a cost of £300. It costs her £15 to dispose of the old fridge and she sells the old sofa on e-bay for £100. In working out the profits of her property rental business for 2016/17, she is able to claim a deduction of £715 (the cost of the replacement items (£500 + £300), plus the cost of disposing of the fridge (£15), less the proceeds from the sale of the old sofa (£100)).

 

Source: Tax Inside, hmrc.gov.uk