On the 6 April 2013 HMRC removed the ‘renewals allowance’ for landlords of unfurnished rental properties and this led to the accountancy profession querying the practical application of these new rules with HMRC. HMRC have recently clarified their view as to how ‘Repairs and Renewals’ should be treated in unfurnished properties.
Prior to 6 April 2013 landlords of unfurnished properties could claim 100% tax relief by claiming the so-called ‘renewals allowance’ for the costs of replacing furniture.
As a result of the change landlords are now unable to claim a deduction for the costs of replacing furniture. Examples of items affected include free standing cookers and other ‘white goods’, carpets, expensive curtains, and other similar items. Landlords are still however able to claim tax relief for the costs incurred in repairing or maintaining the furniture and fittings in the rental property.
There are some exceptions to the new rules where HMRC accept the expenditure as being a repair to the property itself. These include:
- Costs for replacing integrated white goods such as “fitted washing machines”.
- Equipment such as boilers, water heaters and air conditioning systems where less than 50% of the system is being replaced.
It should be noted the removal of the ‘renewals allowance’ only affects unfurnished properties. Properties that are let fully furnished can continue to claim the wear and tear allowance as before.
Properties that are regarded as Furnished Holiday Lets (FHLs) are also unaffected as landlords can continue to claim Capital Allowances for the cost of purchasing and replacing furniture and fittings used in the property.
Due to the above changes you may care to take note of the following suggestions:
- Letting a property fully furnished in order to claim the wear and tear allowance. The property will need to be furnished with sufficient furniture to facilitate such a claim.
- Install fitted white goods rather than using free standing items. Clearly the overall cost of such an approach would have to be considered.
- Whether it should be the tenant that provides items such as fridges, curtains etc so that the cost of such items does not fall on the landlord.
- If you own FHL’s, are the Capital Allowances claims being maximised?
- You could consider reviewing private and rental borrowings to ensure that tax relief is being maximised on interest paid.
If you have any queries or concerns regarding this topic please give Sue Stephens a call.