Wear and Tear Changes

The Government really has it in for buy-to-let landlords. We already have new rules which will start to come in from April 2017 which reduce tax relief on loans and the 3% SDLT surcharge on second homes which came in this month. For landlords who have no borrowing and whose portfolio is static neither of these changes will bite, but another change effective from 6 April will affect all landlords letting out furnished residential property.

Q: I let out three student houses, fully furnished and have always claimed the Wear-and-Tear Allowance, but someone tells  me I can’t any more, what is happening?

A: For most businesses (including the letting of commercial property), tax relief on kit you need to run the letting business is given via  capital allowances on "plant and machinery". This has never been the case for items purchased by a landlord to use in a residential dwelling house, which is what student houses are classified as. Instead the "wear and tear" allowance was available, equal to 10% of rents (adjusted  for any items which the landlord paid on behalf of the tenant like utilities). For many landlords this avoided a lot of work in recording what they spent, but was also basically beneficial, in that taken over the fullness of time the 10% allowance often exceeded what they would actually spend.

This relief has now been abolished, with new rules coming in from this April. From now on a landlord will only be allowed the actual costs of replacing furniture, furnishings and appliances, which will need to be supported by receipts etc.

Q: I’m thinking of buying a new buy to let property which might need fitting out – what are the rules for that one – I would have always just claimed the 10% from the beginning?

A: The new rules don’t give any tax relief for the initial cost of furniture or any other capital items. However you might like to be aware that although a landlord buying an empty property and equipping it from scratch gets no tax relief under the new rules, the same landlord buying an existing buy-to-let with old worn-out furniture and replacing it more or less immediately with new equivalents will qualify for "replacement" relief