In the past, landlords of unfurnished rental properties were eligible for tax relief by claiming the cost of replacing items such as white goods, cookers, carpets, basins and baths under a ‘renewals’ allowance.
Landlords of furnished rental properties have, until now, had a choice: they have been able to claim the ‘renewals’ allowance or opt for a 10 percent ‘wear and tear‘ allowance, calculated as 10 percent of the rent received. Sometimes the wear and tear allowance is attractive to the landlord, but in other cases the renewals allowance proves more lucrative.
HMRC has announced that with effect from 6 April 2013, the renewals allowance will cease. The only concession available to residential landlords will be the wear and tear allowance, which can only be claimed for fully furnished accommodation. This means that landlords of unfurnished or partly furnished properties will not be able to claim for replacing any items. Repair costs, however, will continue to be allowable for both fixtures (integral items such as baths and basins) and furnishings (removable items such as washing machines and sofas).
Time is ticking for landlords seeking to replace any fixtures or furnishings under the renewals law. The best thing a residential landlord can do is fit out their property so that it qualifies as being fully furnished and can benefit from the 10 percent wear and tear allowance every year during the term of the tenancy. Whether this works in the landlord’s favour financially will depend on the term of letting, the rent, frequency with which items need replacing and the tenants’ requirements.