One of the government’s objectives in replacing the 10% allowance for wear and tear with the new Replacement Relief was to improve the quality of furnished let properties.
Under the old 10% rules, you could claim relief without actually spending a penny on the property’s contents. This changed from the 6 April 2016 tax year, and these days you can only claim tax relief when you purchase moveable assets for a rental property; the idea being that it is more likely tenants will benefit from better furniture and appliances.
Tax relief is available for furniture, standalone appliances, carpets and floor coverings, soft furnishings, crockery, cutlery, linen etc. This relief is solely for the replacement of domestic items, meaning the initial cost of purchasing an item for a let property isn’t an eligible expense.
If the replacement item you purchase is a significant upgrade from the original item, you won’t be able to claim the full amount as a tax-free expense either. Naturally, the purchase must relate to buying an item for the sole use of a tenant.
If you have been prompted to replace items to make your properties more attractive to tenants, do make sure that your insurance contents cover is still sufficient. Our policy gives you the option to take out landlords’ contents cover up to £30,000*.
Landlords can’t claim Replacement Relief for providing or replacing fixtures or fittings, such as baths, sinks or boilers under wear and tear rules. Your accountant should apply capital allowance rules to these items. For insurance purposes, such times would be included in your buildings cover.
Tenancy Deposit Wear and Tear
Do not confuse the old wear and tear for tax purposes with a tenant’s obligation to return a home to a landlord in the same state when they leave as when they took on the property, taking wear and tear into account.
Assessing fair wear and tear involves looking at the age, quality and state of repair at the start of the tenancy and its usual expected lifespan. You also need to consider usage: if you choose to let to a family with pets or young children, you would expect more deterioration than from, say, a single pensioner. Of course, a landlord cannot expect the tenant to pay for a better replacement item than the one originally supplied.
The taxman cometh…
The HMRC Let Property Campaign gives you an opportunity to bring your tax affairs up to date if you’re an individual landlord or buy-to-let investor letting out residential property in the UK or abroad, and could help you get appropriate terms to pay the tax you owe. To benefit, you must tell HMRC that you wish to take part. You’ll then have 90 days to calculate and pay what you owe.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Deacon accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein. * Correct at 10 April 2018