Landlords Tax- Beware the end of ‘wear & tear’
Landlords Tax and taxation of rental profits has become an area of government focus in recent times. In the summer 2015 Budget, the government announced that from April 2016 landlords of fully furnished residential property will no longer be able to claim the 10% ‘wear & tear’ allowance as a deduction from their taxable rental profits. The relief will be replaced with a new ‘replacement furniture relief’ which will be available to landlords of all residential property, including those which are unfurnished or part furnished. Landlords Tax and taxation of rental profits has become an area of government focus in recent times
A consultation was launched in October 2015 and the summary of responses was published in December. The measure will go ahead broadly as drafted. There will be no transitional rules and the new deduction will be given for the actual cost of replacing items used in the property, less any net proceeds of disposal of the old item. The initial cost of the item will not be allowable.
Furnished holiday let properties will not be affected by the new rules and will continue to be able to claim capital allowances in respect of relevant items within the property.
The intention is to level the playing field between landlords of fully furnished and part furnished properties. It will also even out fluctuations in the relief which landlords are able to claim in different parts of the country. Landlords across the country may have incurred the same expenditure but one property commands a higher rent due to its location, and therefore receives a higher wear and tear allowance.
The timing of expenditure over the next few months could be key. Deferring expenditure until after 5 April 2016 could mean the difference between no relief and full relief for landlords of unfurnished or part furnished properties. For landlords of furnished properties, relief can be maximised by deferring expenditure until after 5 April 2016 to make full use of the wear & tear allowance now, therefore benefitting from the new replacement furniture relief from 6 April.
The introduction of the new relief will be a welcome change for landlords of unfurnished and partly furnished property who will have been missing out on tax relief since the ‘renewals basis’ was withdrawn in April 2013. For landlords of furnished properties, the change is probably not so welcome!
If you would like to discuss any of the upcoming changes affecting the taxation of rental profits then please do get in touch. Our tax team have expertise in all areas of personal tax and Tara Hayes is an expert in landlords tax and the taxation of rental profits.