Update from HMRC on Self-Assessment for Landlords
In last months article on the top 3 areas where landlords get it wrong when making self-assessment submissions for their annual tax return (original article here ) we appear to have made a mistake ourselves!
In section on "Flipping between wear and tear and renewals" we stated that flipping between using the 10% wear and tear allowance to claiming for individual renewals was not permitted but you could still opt to claim for renewals of furniture etc as incurred.THIS IS NO LONGER CORRECT.
What tax relief can be claimed for furniture etc in residential accommodation?
If the property is let fully furnished a deduction can be claimed for a wear and tear allowance of 10% of the net rent. The rules changed from 5th April 2013. This means that if a property is unfurnished or partly furnished the cost of renewing furniture cannot be set off against tax.
Advice given to Tony Athill from Ashley Penny, HMRC Technician 16.50 Hrs 23/12/1014 quoting from guidance they have been given by an inspector internally - "Taxpayers who let fully furnished residential property and have previously used the renewals allowance concession will be able to claim the wear and tear allowance for the year 2013/14." She also said it would apply next year but obviously if someone has claimed on a renewals basis for 2013/14 they have made a mistake that should be corrected. Accountants may not agree as this looks like an "informal concession" that has has not been publicised. If you are affected take not of the HMRC quote.
To qualify as a fully furnished letting the property has to be a dwelling house that is let with sufficient furniture, furnishings and equipment for normal residential use. The wear and tear allowance is equal to 10% of the net rents after deducting charges or services that a tenant usually pays but which are in fact borne by the landlord, e.g.Council Tax and water charges.
The 10% wear and tear allowance covers things like:
- Renewal of furniture or furnishings, such as beds or three piece suites
- Televisions
- Fridges and freezers
- Carpets and floor coverings
- Curtains
- Linen
- Crockery
- Beds
It does not apply to fixtures that are an integral part of the building.
In addition to claiming the wear and tear allowance in the case of fully furnished properties, a property business can
also deduct the cost of renewing or replacing fixtures provided that they are an integral part of the building.
Fixtures integral to the building are those that are not normally removed when the property is vacated. Examples include:-
- Fitted hob in a kitchen
- Baths
- Wash hand basins
- Toilets
- Immersion heaters
As these items are considered integral to the building the cost of replacing such items is normally an allowable expense and is treated as a repair to the building. This applies to any letting not just one that is fully furnished.
Relief is also available for certain expenditure on renewals. This renewals allowance applies only to deductions for expenditure on replacement or provision of tools which are defined as "implements, utensils or articles". No deduction can, however, be claimed for the initial cost of these items. This would extend to items such as ladders, screwdrivers, hammers etc used for the purposes of the ongoing property business. In effect this only applies to tools of the trade.
If you were willing to supply furniture but the tenants had their own you could store it. We are advised that it would still count as a furnished dwelling. If you were investigated, the tax man may ask to see your inventory so it would be wise to show a complete set of furniture and get the tenants to sign saying "please store on my behalf as we don't need it". (This has not been tested.)
Inflatable furniture would also work.
Thanks to Mike Smith for raising this point and Richard Green-Wilkinson at Wilkins Kennedy for checking the facts.