Changes to tax relief rules from April 2013 may mean that landlords need to reconsider whether items such as washing machines and cookers are replaced in furnished residential letting property.
A furnished property is defined as being a property that has sufficient furniture, furnishings and equipment for normal residential use. In other words, a tenant must be able to move in and live without being required to provide anything other than their clothing and food. They may choose to bring in TVs, computers and similar items but they could live in the property comfortably without these.
HMRC have always taken a view that the property should contain at a minimum, beds, chairs, tables and a cooker. The question to ask is “would you move in and live there easily?”
Prior to April 2013, if a dwelling house was let furnished, the landlord had two choices in claiming tax relief for items such as beds, carpets, curtains, sofas and white goods. The first choice was known as the “Renewals Basis” and here, the landlord would not make a claim for relief on the initial cost of these goods, but would then claim the full cost of any replacements made. This could be particularly beneficial where furnishings had to be replaced regularly, such as in student lets.
The alternative method was to claim a “wear and tear” allowance each year. This is relief is calculated at 10% of the total rental income less any part of the occupier’s council tax and water rates which the landlord paid and is given as a deduction each year to represent the wearing out of the furniture.
It was not possible to move between the two alternatives and most landlords tended to claim under the wear and tear basis as this was simple to operate. The change introduced from April 2013 however means that the renewals basis is no longer available. Therefore, unless you claim relief under the wear and tear regime, you will not get tax relief for replacing items such as those set out above. Landlords may now be faced with the decision of not replacing items or requiring the tenant to replace or provide these goods instead.
All is not lost however, as landlords will still be able to claim tax relief on replacements of items such as bathroom suites and kitchen units as these are regarded as forming part of the building itself and so are fixtures rather than furniture.
If you think the changes may affect you, please do contact us.