Many of our Moore Accountancy clients are buy to let landlords.
Some have become landlords due to circumstances (aka Accidental Landlords) where properties are being rented as they have been unable to sell or have been inherited; whilst others are intentional landlords who are purposely investing in bricks and mortar for further annual income or as an alternative pension fund.
Recently there have been a number of changes to the tax rules relating to what expenses are allowable for buy-to-let landlords when furnishing and repairing a property. It is therefore important to be aware of what can and cannot be claimed so that you don’t lose out.
Previously, buy-to-let landlords had been able to opt for either a “wear and tear allowance” or, by HMRC concession, the “renewals basis” and this would depend on whether the property was fully furnished or part/unfurnished.
Wear and Tear Allowance
The landlord claimed 10% of the rent as a deduction to cover the cost of replacement of items in the property. This was only available for properties let fully furnished though.
The landlord would be allowed a deduction for replacement items of furniture. The initial purchase cost was however not allowed. This relief was available on all properties and was therefore beneficial where a property was not rented as fully furnished.
After 6/4/13 this was removed but landlords could still claim a deduction for replacement ‘tools’. . These could include cutlery, crockery, bedding, bed linen etc. but not carpets, sofas, beds or free-standing ‘white goods’.
From 6/4/16, both the 10% wear and tear allowance and the renewals allowance was replaced by a new relief which allows all landlords to deduct the costs of replacing furnishings in a property. The relief will still not be available for the initial cost of furnishing the property (similar to the old renewals basis).
The new relief will cover the costs of replacing items such as:
• Moveable furniture and furnishings e.g. beds and sofas
• Fridges, freezers, freestanding cookers
• Carpets and floor coverings
• Crockery and cutlery
• Curtains and bed linen
Replacement of integral fixtures (ie items which are not normally removed by the owner when the property is sold) are not included. These would include fitted kitchen units, boilers and baths. Note it may be possible to class the replacement cost of such items as a deductible expenses (as a repair to the property directly).
General repairs such as painting and redecoration will still be allowed as a deduction from rental profits, as will replacement of double glazing windows and doors to a property.
These changes will primarily affect landlords who generally have low repairs and maintenance costs. They will have previously had the benefit of the 10% wear and tear allowance but now will have a much lower level of expense to declare and this may increase their tax liabilities.
There are also further changes to the interest allowable on residential properties, which will be covered by a separate blog post.
If you want to discuss anything further then please get in touch with Moore Accountancy via email (firstname.lastname@example.org) or phone (07542 299 247).