Tax Relief Changes for Landlords

Landlords can no longer claim tax relief for the replacement of free standing white goods in unfurnished residential lettings, HMRC have confirmed. This measure came into effect in April 2013 and will therefore affect rental accounts and tax returns for the 2013-14 tax year onwards.

Unfortunately another rule prevents residential letting agents from claiming capital allowances. That is why the Wear and Tear allowance for residential landlords exists. In April 2011 the concessionary 10% allowance was replaced with a tighter statutory basis giving the same relief. It covers the provision of movable furniture such as beds and suites, televisions, fridges and freezers, as well as soft furnishings such as carpets and curtains.

A previous concession originally provided incentives for residential landlords to maintain their unfurnished properties by offering tax relief for the costs of replacing white goods and other furnishings. This incentivised landlords to replace items such as worn out furnishings and broken fridges. It is this incentive that no longer exists. Furniture which has a useful life of less than two years doesn't count as capital expenditure so a tax deduction can be claimed for the full cost in the year of purchase.

Under the new rules landlords who provide some furniture but not enough to qualify for the Wear and Tear Allowance won't be able to claim for the cost of renewing it unless it is permanently fixed to the building. This seems inequitable but there is a solution. Furniture to be provided to tenants can be leased by the landlord. The rules only require that an asset be provided not owned in order for it to qualify for a tax deduction. By renting furniture instead of buying it you can obtain a tax deduction for the cost of partly furnishing a house.

Despite this the withdrawal of the renewals allowance could give rise to additional costs for private landlords and these costs may be transferred onto the tenants, thereby increasing tension between landlord and tenant over costs and maintenance.

What can be classed as a ‘replacement’ or a ‘repair’ is sometimes complex turning on fine distinctions. Given the removal of the renewals allowance we may see more arguments with the tax office about what can be justified as a repair instead of a replacement on the basis that repairs are allowable but replacements may not be. It is advisable to seek professional guidance from a tax adviser to ensure that you are maximising your deductions against rental income, given that the tax rules regarding what can be claimed have now changed



Robert Bradley is principal of Bradley & Associates
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