Removal of Wear and Tear Allowance Consultation by HMRC

For those of us who provide fully furnished homes as a service to our local communities, the removal of the 10% W&T allowance is a sad loss, with some swings and roundabouts, and will increase our administration load. Fully agree applying a cap would have made more sense this is unlikely to now be changed. One potential impact is that to tenants who may now be charged for more dilapidations than previous as the buffer provided by the W&T allowance will be removed.

Acknowledge for LL with unfurnished properties, this is a gain.

Reply to the comment left by "Michael Barnes" at "26/07/2015 - 07:59":

Michael - your reply to Ian on initial furnishing cost being treated as capital has a logic but not sure if correct. This will be true for built-in and fixed items, but if can be removed then believe excluded. Have heard it said that furnishings (including likes of flooring) are revenue and their initial cost may be claimed as such. Certainly appears to be a grey area of interpretation.

Reply to the comment left by "Dr Monty Drawbridge " at "26/07/2015 - 20:55":

Your argument that a highly paid footballer potentially getting 10% knocked off a potentially massive tax bill has convinced me.

If I were going to continue doing furnished lets then it would be a great consolation knowing Phil Neville might also be getting screwed over.

But I will be winding down my furnished lets as it will no longer be worth the hassle. I suspect many other landlords will do the same.

Reply to the comment left by "Monty Bodkin" at "27/07/2015 - 08:29":

I also will suffer with this change but also agree that it is hard to argue against the change as most people who claim the relief end up getting more allowance than they actually spend and that after all relief on what you spend is the essence of the matter.

However, I also agree that furnished accommodation is a lot of hassle to manage. Inventories take a lot more time to initially prepare, at check-in and at check-out. As has been said there will be many more deductions from deposits because of this as we too were pretty laid back about this if a tenant had caused some minor damage. In addition how often do you end up moving furniture in and out of a property because a tenant wants to (Or does not want to) bring their own item of furniture, whatever that may be. And you can bet on it that you will have just added the item they don't want (Or taken out the item they do want).

At the end of the day though, it is not the governments responsibility to pay us for our hassle, it is the tenants responsibility. So we need to make sure that the additional rent we charge (Over and above the equivalent unfurnished property) is enough to pay us for that hassle. That of course will work fine in the more affluent areas (Affluent as opposed to London) however as said above where people are at the lower end of the market - We too supply furnished properties to people who have nothing -any increased rent costs are likely to be an unachievable step . The choice therefore may come down to ending furnished lets for those tenants who most need them.

Reply to the comment left by "Ray Davison" at "27/07/2015 - 11:43":

Could not agree more. From the end of this year I will no longer include furniture in my affordable housing, ending furnished lets for the tenants most in need. I do this reluctantly but I have to make a profit at the end of the day; being socially responsible is subordinate to making a reasonable living.

There has been a lot of talk about this allowance being fair game for removal and at first I thought the same. When I read the IR consultation document I suddenly realised some serious consequences and why the allowance had probably been given in the first place. Below is the letter I just sent in reply to the consultation.

Dear Sir/Madam

Regarding the current proposals to withdraw the wear and tear allowance, I would like to say why I believe it should be kept.

Renting a furnished property requires more initial capital and thought about what furniture is to be provided. It takes time to acquire the beds, mattresses, mattress protectors, microwave, coffee maker, pots and pans, cutlery, crockery, dining table, chairs, coffee table, rugs, throws, pictures etc. It takes time and effort to check on and maintain all of these items, they form part of the landlord's responsibility to his/her tenants. If furniture fails, or wears out, it must again be thought about, managed purchased and installed, all with the agreement of the tenant. Insurance must be purchased and managed to cover these items. All of this must bring sufficient financial reward to be worthwhile.

In unfurnished property, none of this extra work is required. The tenant moves in and is responsible for his/her own affairs.

Given there is little or no difference in the rental rates achievable for furnished or unfurnished properties, without any additional allowance to balance the extra investment, work and risk, there is a distinct disadvantage for furnished rental landlords. I believe the current level of support is actually about right. I currently own 10 properties in the North London area and could rent them all furnished or unfurnished. Through the current allowance, I receive about £7000 pa to cover all my costs. I would not have to loose much of this before it would not be worth my while keeping my properties furnished.

I believe it is quite clearly wrong to suggest that removing the current allowance, in some way makes things more fair as it appears not to recognise the additional works and capital involved for furnished properties. The result of removing the allowance would prompt me to let my places unfurnished, as it would most other landlords I suspect. This is fine as long as the government is happy to see furnished accommodation disappear or rents go up approximately 10% to make it worth a landlord's while. I believe the reality would be that given the current conditions, we would see a substantial drop in furnished places available. London in particular needs a dynamic labour force of which young people make up a sizable percentage. These are the people, with no household possessions, nor money to purchase or certainty of situation to make purchase worthwhile, that will be most affected. In turn, it is the dynamism of the economy that will be reduced.

On a personal level, overall it probably will not make so much difference to me as I will start to rent unfurnished but the proposed change does not make the system fairer as it is claimed is the intention. It will take away any reason for furnishing accommodation and make the market less responsive to needs.

Please do not hesitate to contact me should you have any questions or queries.

Yours

Jamie Finch

Reply to the comment left by "Jamie Finch" at "01/08/2015 - 15:48":

You state, Jamie, that: "Given there is little or no difference in the rental rates achievable for furnished or unfurnished properties, without any additional allowance to balance the extra investment, work and risk, there is a distinct disadvantage for furnished rental landlords".

.........and so market forces will open up the gap in rental rates in which case tenants rather than taxpayers will fund the extra cost associated with furnished versus unfurnished.

Not much wrong with that, in my opinion.

Reply to the comment left by "Ian Cognito" at "01/08/2015 - 16:17":

The end user always pays.

It is not Tesco which pays business rates, the company merely acts as a conduit between the customers (who pay) and the government (who collects).

Once the government understands this principle it will begin to understand why its policies will lead to increased rents. As you say nothing much wrong with that.

Reply to the comment left by "Ian Cognito" at "01/08/2015 - 16:17":

Hi Ian

I have not said there is anything wrong, just pointed out what I feel are the likely consequences and that the allowance is not just a freebie. It seems I don't share your view of market forces though. If they were that simple and predictable, business investment would be a risk free pastime! I don't know where you live or to whom you rent but in my opinion, in London at least, young people cannot physically pay more than they are doing. If this is the case then furnished rates may well not rise.

Reply to the comment left by "Jamie Finch" at "01/08/2015 - 15:48":

Jamie
I'm a landlord and I'm really going to lose out with all this. But I still think it is right. For one thing what about the North and South divide? Because it was based on rents then the allowance for me with student lets in Oxford is considerable, while similar Landlords say in Leeds, it is much less. After all what we pay for white goods and furniture was not any more in Oxford than it would have been in Leeds!

There will be a greater move to unfurnished, especially flats but my properties are HMO's and we can only legally let them furnished. And even if we could the damage and hassle of tenants moving in and out with all their furniture after a year is not worth it.

My daughter is a young professional in London. Her flat was unfurnished and apart from the fact she is the worlds worse flat pack assembler, she had fun picking up things advertised on Gumtree, a bit like me and her Dad did forty five years ago when we rented a London flat. We were poorer than my daughter as we were students but we managed.

It will take time to adjust as Landlords, as some of us have had it so good for so long.