Consultation on Furnishings Allowance

Consultation on Furnishings Allowance

Furnishings Get Old Too!

Consultation on Furnishings Allowance

The following is from the 'Property Industry Eye' following proposals to scrap the Landlord's 'Wear and Tear Allowance':

 

A 12-week consultation has been launched by HMRC into the scrapping of the wear and tear allowance announced in the summer Budget.

Currently, landlords of fully furnished rental properties only can claim an annual allowance of 10% for general wear and tear

From next April, the Government plans to replace the allowance with a system of tax relief that will enable all landlords of residential property to deduct costs actually incurred on replacing furnishings.

The new relief would apply to landlords of unfurnished, part furnished and fully furnished properties, but not to furnished holiday lets.

Under the new scheme, landlords would be able to claim tax relief on “movable furniture” – for example, carpets, curtains, fridges, freezers, cookers, washing machines, spin dryers and TVs. The test appears to be that if you would normally expect to get it in a removals van, you would be able to claim for its replacement.

Integral fixtures, such as replacement baths, sinks, boilers and fitted kitchen units, would be outside the scheme.

The scheme seems to include the concept of ‘betterment”.

For example, if a washing machine is replaced by a washer-dryer, HMRC agrees that would be an improvement, but that improvement in itself gives no tax perks. If the new washer dryer cost £600 and the cost of buying a like-for-like washing machine would have been £400, then the replacement relief will be £400.

The new tax scheme may therefore discourage landlords, in the short term at least, from replacing basic goods with improved versions that tenants would prefer.

The new replacement furniture relief will also give relief for the cost of the replacement, less any proceeds received from the old asset that is being replaced.

So, if that old washing machine is sold for £200, the relief on its new replacement would come down proportionately.

The impact statement with the consultation says that the change is expected to bring in £205m to the Exchequer in its first full year.

The impact also says that the change will create an additional administrative burden for landlords, who will need to keep a record of their actual expenditure.

Comments close on October 9, with a response document to be published later this year and draft legislation published in advance of the Finance Bill 2016.

Further details can be found HERE