10% wear and tear loss affect on furnished?

Thanks Jamie for publishing the link. It is a good read. I note the subject is the reform of the W&T allowance applicable to PROPERTY BUSINESSES. My capitals. And the scope of the consultation is intended to improve how residential property businesses are taxed and the measure is designed to improve the fairness in the taxation of residential property.

Also 2.12 To ensure that the W&T relief mirrors as closely as possible, the landlord's economic position ....

Yeah right.
So explain how a PROPERTY BUSINESS is FAIRLY TAXED if FINANCE COSTS are no longer a BUSINESS EXPENSE, and will merely only given a 20% tax relief. And how this aligns with the landlord's true economic position?

Oh and back to W&T allowance. Where exactly in the 'new' fair regime do I allocate my furnishings expense when I first furnish my property? If it is capital then presumably when I sell I can deduct my initial expense from the sale cost (or cost of disposal) of my furnishings? A CGT loss?

Reply to the comment left by "Tony Atkins" at "04/08/2015 - 16:51":

Sounds rather like all that "communication IT" purchased by MPs on expenses that turned out to be TVs and iPads.
We have always opted to furnish as with good tenants the 10% pa would repay the capital outlay in around 26 months but with say a five year life span it was a no brainer. The up front relief is clearly not as good but does at least align the genuine spend and reclaim which helpfully addresses the early replacement following those bad apple tenants.

Reply to the comment left by "Mike W" at "04/08/2015 - 17:20":

Not capital, an income expense so you get the full value upfront just as any other business claiming Annual Allowance.
I have just been told that transitional arrangements are likely to follow the imminent consultation.

Reply to the comment left by "Mike W" at "04/08/2015 - 17:20":

HMRC has always selectively chosen how to tax property rentals - sometimes they're described as investments, sometimes as businesses.

The only way to make it crystal clear that you own a business and deduct your full interest costs from rent as you claim you wish to do, is to incorporate your rental investments. You (aka the company) will then be saving 20% corporation tax (18% by 2020, supposedly) on a pound for pound basis. Businesses only get a 20% deduction for their mortgage interest business costs, so why are you complaining you are "only" getting a 20% deduction on your personal income tax?

As regards W&T, again businesses have to deduct on an "amount actually spent" basis, so there is a strong argument that individuals running rental businesses should do the same.

Reply to the comment left by "Tony Atkins" at "04/08/2015 - 16:51":

All expenses are subject to the "wholly and exclusively" rule.

Any personal use is tax evasion.

Any residual value when no longer used in lettings business must be added to income (standard tax rules).

Reply to the comment left by "Tony Atkins" at "04/08/2015 - 16:51":

I would expect HMRC to start talking in terms similar to the ones they use to decide whether an expense incurred by a self-employed person is allowable or not and anticipate them putting up stiff resistance to such practices (if they found out of course...)

quick question: I just bought another HMO. Current tenants moving out in Sept, after which I want to replace the furniture which is pretty dire. For my other HMOs I was using the 10% W&T, will I be required to do this for the new property as well?

If yes, it makes more sense to rent it with the current furniture and not buy anything till after April.

Question:

What happens to treatment of furnishings for institutionally owned student properties - ie those belonging to Universities, aka the competition?

Has that changed, or is the PRS to be made less competitive?

Thanks

Matt

Reply to the comment left by "Michael Barnes" at "04/08/2015 - 22:46":

Of course: anyone not following these rules would be foolish. Nonetheless, residual prices for second-hand furniture are generally poor, and the first-year depreciation will be extremely high.

Reply to David Mensah: from my understanding of the new rules, you can use 10% W&T in the tax year 2015-16, but from next April you can deduct the full amount of any furniture in the tax year it is purchased. Therefore it makes sense to wait until April.

Reply to Matt: universities may be charities or their lettings may be set up as limited companies, but I would have thought in both cases that they can deduct the full amount of any furniture in the year it is purchased. The 10% W&T allowance only applies to private landlords, who are still treated as "investors" rather than businesses in tax terms. Abolishing W&T seems to be intended to bring landlords into line with practice as regards limited companies, and address the perceived abuse of the rules by landlords who are claiming 10% W&T but rarely actually replace anything.

I just read up a bit on the rules, and this corroborates Tony's answer to me:
http://www.taxation.co.uk/taxation/Articles/2013/01/23/298411/wear-and-tear

"This is a once-and-for-all choice. There can be no swapping from one system to the other, and all furnished lets belonging to the same landlord have to be dealt with on the same basis"

I loved the W&T because it was so simple. Keeping track of all furnishings is messy and complicated.

While W&T created perverse incentives to minimally kit out a house and call it "furnished", and then never to renew furnishings, the renewals basis creates its own problems.

You can only claim for renewals, which incentives against buying new furniture after you buy a property.

So, if you convert a house to rentals, it is in your interest to buy old, run-down or damaged furniture that would have once been expensive, but now is cheap. You can then replace it soon with proper furniture.

Similarly, if you buy a tenanted property, it is worth asking the seller to fill it up with old furniture, so that you can soon replace it with like for like, but new instead of old.

etc...