Buy to Let Deductions
Furnished properties
Landlords of furnished property always had the choice of claiming either the renewals basis
or “wear and tear” allowance, until April 2013. From this date, the renewals basis became
no more…
Owners of let furnished property can now only claim the 10% wear and tear allowance. The
wear and tear allowance is generally calculated as 10% of the gross rents less any
expenses which would normally be borne by the tenant but which are actually borne by the
landlord. Such expenses would typically include council tax and water rates.
The wear and tear allowance is given to provide relief for expenditure on capital items and
means that the actual expense incurred for such an item is not given as a deduction against
profits.
Whilst there are many items that could be covered by the wear and tear allowance,
examples would include:
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
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Carpets,
Beds, and
Free-standing washing machines/fridges/etc.
In a slight twist to the complexities, if the appliances are “integrated” into the property then
they will qualify as a “repair to a fixture” and be deductible, provided that the replacement is
not an improvement over the original. In its most basic sense, an integrated appliance is
built-in to the surrounding units and usually hidden behind a cupboard door.
So, for the landlord of a furnished property a free-standing dishwasher is relieved under the
wear and tear allowance with no specific relief for the expense, but the replacement of a
(usually more expensive) integrated dishwasher would be deductible as a repair (unless an
improvement arose in the form of a better model of course) in addition to the wear and tear
allowance.
Unfurnished properties
But what about unfurnished properties where the wear and tear allowance does not apply?
Landlords of unfurnished properties now have a harder time claiming relief for capital
expenditure. With the renewals basis being removed and no wear and tear allowance being
available to unfurnished lets, how do landlords of unfurnished properties obtain tax relief?
For the acquisition of small items, such as cutlery or a toaster, it may be possible to claim a
deduction as a “trade tool”. This would enable the cost to be deducted from profits in the
year the expenditure is incurred.
However, the trade tool rules only apply to small items that are regularly replaced. There is
no relief for free-standing appliances. HMRC have confirmed that the acquisition of such
items – cookers, washing machines, etc. – will not be relievable for landlords of unfurnished
properties.
February
2015
The same twist to the rules for integrated appliances applies for unfurnished properties as it
does to furnished properties. If the appliance is integrated into the surrounding units then a
replacement appliance will be relievable against profits where the replacement is made on a
like for like basis.
There are further rules in relation to carpets and curtains… Neither are fixtures and it would
seem that the tax treatment of the replacement cost depends on why the item is being
replaced!
For example, if a perfectly usable carpet gets damaged it will generally be difficult to repair
and the only reasonable option would be to replace the whole carpet. There is an argument
that this replacement would be relievable against the profits.
But, if you replace a 20 year old carpet because it is old and becoming frail, the costs would
not be allowed as a deduction as one would be replacing and not repairing the asset!
This might be an exercise in semantics, but the reasoning behind the costs may well
determine their deductibility.
HMRC have said that they will look at the anomalies created by the removal of the renewals
basis but this will not help landlords as they prepare their tax returns for 2013/14.
In summary, capital expenditure may be relievable as follows;
Item
Furnished
Unfurnished
Cutlery, linen, etc
Wear and tear allowance
Deduction as trade tools
Free-standing appliance
Wear and tear allowance
No relief available
Integrated appliance
Repair to fixture if no
improvement over original
Repair to fixture if no
improvement over original
Carpets and curtains –
replacement due to damage
Wear and tear allowance
Deductible as a repair
Carpets and curtains –
replacement due to age and
frailty
Wear and tear allowance
No relief available
It would not take too much furniture to class a letting as furnished. The acquisition of a bed,
sofa and table – for example, could be enough to then claim the 10% wear and tear
allowance.
If you would like to know more, please talk to your usual Scrutton Bland contact or
Sarah Gamblin
t: 01473 267000
e: [email protected]
or
Marc Dorsett
t: 01473 267000
e: [email protected]