The end of wear and tear allowances

The wear and tear deduction allowed against residential letting income is to be scrapped. What will replace it and will landlords be better or worse off?

Worn out tax deduction. In the 2015 Summer Budget the Chancellor announced that the longstanding wear and tear (W&T) tax deduction has outlived its usefulness and will be withdrawn from April 2016. The purpose of the deduction is to provide tax relief to individual and corporate landlords for the cost of replacing furnishings in rented residential accommodation.

Renewals renewed. HMRC put forward an alternative to the W&T allowance in a consultation paper and is now considering the feedback on this. Ironically, it plans to bring back an allowance that is virtually identical to one that it pushed the government to abolish in 2013. It proposes a renewals allowance which will allow landlords a deduction for the cost of replacing furnishings and equipment, e.g. beds, curtains, crockery, TVs etc., but just like the old renewals allowance there’s a catch.

No improvement. The new tax deduction will only be allowed up to the value of a like-for-like replacement. For example, you replace a TV in a let property. Instead of buying a basic HD model for say £450, you buy an ultra HD TV for £750, HMRC would only allow a tax deduction for £450. However, if a few years later you replace the ultra HD TV with another equivalent ultra HD set for, say £900, you could claim a deduction for the full £900, because it’s a like-for-like replacement.

Tax planning. HMRC’s consultation doesn’t indicate that special rules will apply for the transition from the W&T allowance to the renewals system. For that reason you should think carefully before replacing furnishings etc. in your residential lets.

Tip. Because the W&T deduction will work out the same for the period up to April 2016 whether or not you purchase new furniture etc. you should delay buying it until after 5 April (1 April if your company is the landlord). That way you won’t lose any W&T allowance plus you should be entitled to claim a renewals allowance for your purchases.

From April 2016 you’ll be allowed a tax deduction for the actual cost of renewing furnishings etc. Defer replacing such items until after this rule takes effect. This could increase the amount of tax deduction you’ll receive.
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