11:09 AM, 27th February 2013, About 12 years ago 17
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Our accountants have sent the following important tax news to all of their landlord clients. Please take heed and share this information with all other landlords you know.HMRC have announced that from 6 April 2013 allowances for the replacement of furnishings will no longer be available for landlords. Repair costs will continue to be fully allowable.
The current rules allow full deductibility of both repairs and replacement expenses against rental income in the year the expense is incurred. It is important to make two distinctions here:
If you replace an old item with a new one, it is quite clearly a ‘replacement’. Repairs costs are routinely incurred for maintenance, but if you spend more than 50% of the cost of an old item when repairing it then it may still count as a replacement rather than a repair.
‘Integral’ items are of the type that would not normally be removed by either tenant or owner if the property were vacated or sold (for example, baths, washbasins, toilets);
‘Furnishings’ include sofas, tables, suites, beds, cookers, washing machines, dishwashers, carpets, curtains, linen, crockery, or cutlery.
Although repair costs will continue to be fully allowable against income for both integral fixtures and furnishing, from 6 April 2013 allowances for replacements of furnishings will no longer be available.
Wear and tear allowance for fully furnished properties will continue to be available post 5 April 2013
Wear and tear allowance is calculated as 10% of the rent less council tax, water rates, and other services where the rental property is fully furnished. Until 5 April 2013 you can continue to use either the replacement/renewal allowance for furnishings or wear and tear allowance (not both).
From 6 April 2013 the only relief available to residential landlords will be the wear and tear allowance, and this can only be claimed for fully furnished properties, so landlords of unfurnished or partly furnished residential accommodation will not be able to claim any relief at all for replacing furnishings.
Allowance for cost of renewing integral fixtures will also continue
In addition to the wear and tear allowance, the cost of replacing or renewing integral fixtures may also be claimed against rental income. Where expenditure qualifies for this deduction, the following apply:
Expenditure on repair and renewal (including installation) of replacement fixtures may be treated as expenditure on repairs in addition to the 10% wear and tear allowance.
Replacement expenditure may only be claimed if you replace like with like. If a basic sink is replaced with a high end luxury sink, then HMRC will consider it an improvement not a renewal and it will need to be capitalised rather than expensed.
It is also worth noting, that in the case of house in multiple occupation, if the renewal expense is in a communal area such as corridors and hallways, then it is possible to claim capital allowances up to 100% in the year even after 5 April 2013.
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Neil Barlow FCCA ATT
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Sign Up13:14 PM, 28th February 2013, About 12 years ago
Unfortunately it is often the case that information obtained from telephone calls made to HMRC is misleading or incorrect.
By HMRC concession, if a taxpayer incurs capital expenditure on replacing plant or machinery, the taxpayer may claim a revenue deduction for the replacement expenditure (a “renewals” allowance) for the purpose of income tax. This concession enables landlords to obtain a tax deduction for the replacement of furnishings such as sofas, washing machines etc provided that the wear & tear allowance is not claimed.
This concession which can be found in HMRC’s Business Income Manual 46935 is being withdrawn from 6 April 2013 and the legislation which remains in place (s68 ITTOIA 2005) only allows the renewals allowance to be used in respect of the replacement of trade tools such as hammers, chisels etc.
The option available to the ordinary trader is to claim capital allowances on the plant & machinery on which previously the renewals allowance would have been claimed. However, this does not help the buy to let landlord who is not allowed to claim capital allowances on the furnishings in their rental properties.
Mark Crampton Smith
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Sign Up13:35 PM, 28th February 2013, About 12 years ago
@ Neil Barlow.... many thanks for clarifying this...........it is frightening that one spends 15mins trying to get through to HMRC only to find that they do not know what changes are afoot. I have made a mental note to record all telecoms with HMRC from now on........ could save me a fortune!!!
Michael Barnes
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Sign Up10:30 AM, 1st March 2013, About 12 years ago
I suggest that we all write to our MPs asking them
a) if they know about this and
b) what they are going to do about it,
and identifying it as something that will reduce the quality of PRS housing (carpets etc will not be replaced).
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Sign Up13:10 PM, 4th March 2013, About 12 years ago
If you have a few properties it may be worthwhile setting up a limited company to buy white goods etc and then renting them to yourself and possibly adding in management and maintenance charges.
Mark Alexander - Founder of Property118
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Sign Up13:51 PM, 4th March 2013, About 12 years ago
@Alice, now that's very clever, I like your thinking 🙂
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Sign Up16:52 PM, 4th March 2013, About 12 years ago
I fully support the previous comments. We have spent 25 plus years improving the living standards of our tenants in HMO's. A lot of these people are on low incomes and cannot afford to buy furniture of any kind. What on earth is the governments thinking behind this?
We, like most other landlords would have no option other than to simply not replace furniture, fridges and cookers when they break down. This will undoubtedly lead in a few years time to low income rented properties being full of broken furniture and very old appliances.
As a registered HMO landlord we receive visits from local government officials who tell us all the things that we MUST provide for our tenants. This smacks of cohersion! One department tells us we must provide something and then effectively we are then going to be taxed for doing so.
I thought things were bad enough after the continual medling in our sector by the previous government. It seems the current government is just as clueless when it comes to looking into the future. Wake up Mr Cameron, you're losing votes!
Calvin Hobbs
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Sign Up11:04 AM, 5th March 2013, About 12 years ago
I am the leaseholder of a tenanted studio flat in a council estate
The cyclical/major works to the estate started in September 2012 and will be completed in late April or May 2013
I received the estimate and works description in mid 2012.
The council will invoice me as soon as the works are completed which means this will happen during the next financial year i.e after the 5 April 2013
Are these expenses allowable against the rental income generated during the 2012-2013 financial year?