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Saving Tax With Wear And Tear Allowances

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Fri 05 Feb 2016

Saving Tax With Wear And Tear Allowances

Landlords can save tax with changes to the way Wear and Tear Allowance is claimed that are due in April by holding off on spending money on replacing furniture, white goods and other items supplied to tenants.

Current rules only allow buy to let landlords renting out furnished homes to reclaim the costs of replacing moveable items at a home under the 10% Wear and Tear Allowance.

From April 6, 2016, HM Revenue & Customs (HMRC) is axing this allowance in favour of a new replacement allowance that all buy to let landlords can claim – although the compliance rules are stricter.

To save tax, all landlords have to do is wait until April 6 to replace any items supplied for tenants in their rented homes.

Landlords with furnished lets will receive the full 10% Wear and Tear Allowance this year regardless of the spending they make to offset against tax, but will lose out on a reclaimable cost if they spend money replacing items against the allowance.

For example, if they are due £1,500 to offset against tax as 10% Wear and Tear Allowance and spend £400 replacing a fridge freezer, their notional tax relief drops to £1,100.

By delaying the replacement, they maximise their tax savings – the full £1,500 goes against tax this year and £400 next year, making the full tax relief £1,900 over two years.

This year, unfurnished landlords would receive no tax offset for spending the £400, but after April 6, will benefit from the full relief.

The new allowance is for landlords spending on moveable items for the use of a tenant in a property, such as:

  • Movable furniture or furnishings, such as beds or suites,
  • Televisions,
  • Free-standing appliances such as fridges and freezers,
  • Carpets and floor-coverings, including laminates
  • Curtains, cushions and linen
  • Crockery or cutlery,

Replacement of integrated appliances, such as ovens or freezers should be claimed as repairs.

Some other replacement allowance restrictions also apply –

  • Landlords can only claim for spending on items for the sole use of tenants
  • Claims for replacement tools are no longer allowed
  • Claims for homes used as uncommercial lets or attracting Rent-A-Room Relief are  not allowed

Landlords can claim the replacement cost of an item plus the cost of disposing of the old item less any payment received against the disposal.

 

[Guild Of Residential Landlords, January 2016]