Wear & Tear Tax Allowance For Furnished Lettings

Most landlords would already be aware of the ‘Wear & tear allowance’ for furnished lettings, but many are still confused about what it covers. According to HMRC, it refers to “the provision by the owner of plant or machinery, including furniture, for use in a residential property”. Because these items do not qualify for capital allowance, a deduction may be available for a wear and tear allowance.

Wear & tear tax allowance for Landlords

From 2011/2012 onwards, the wear and tear allowance is calculated as follows – it is 10% of the “relevant rental amount”, which is the net profit from the rental income less any expenses that the owner may have paid instead of the tenant i.e. Utility bills (gas, electricity, water); Council tax (or domestic rates in Northern Ireland).

First of all, landlords must understand that the allowance is only applicable to a letting of furnished properties and excludes furnished holiday lettings or the rent a room scheme. It covers what HMRC refers to as a “dwelling house” (which means someone’s permanent place of residence, by opposition to a place where someone may holiday). For that reason, a rented caravan or houseboat may also qualify. However, it will not be available to tenants who sublet as only the first landlord in the chain is eligible to claim the allowance.

Secondly, the wear and tear allowance only applies to furnished properties. So what is a ‘furnished’ property, exactly? It is described as “one that is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and other furnishings, cooker, etc.” A non exhaustive list of items covered by the wear and tear allowance includes movable furniture or furnishings (such as beds or suites); televisions; fridges and freezers; carpets and floor coverings; curtains; linen; crockery or cutlery; other furniture. Therefore, partly or unfurnished properties do not qualify for the wear and tear allowance. A property is not furnished if there is only the provision of nominal furnishings, for instance a fitted kitchen, curtains and carpets. It is also worth noting that fixtures that are an integral part of the buildings are not covered – basically any item that cannot normally be removed from the property i.e. baths; washbasins; toilets; immersion heaters; etc. However, the cost of replacing such fixtures would normally be treated as an allowable expense as a repair to the building. Full guidance is contained in forms PIM3200, PIM3205, PIM3210, PIM3215 and PIM3230, all obtainable from HMRC’s website.

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