Replacement tax relief - are you up to speed?
PUBLISHED: 14:59 11 July 2018
The tax relief available to landlords has changed a lot in recent times, many would say for the worse with the scrapping of the ‘Wear and Tear Allowance’ on fully furnished properties and the restriction of mortgage interest relief. Jon Hook, managing director of Norwich Accountancy Services, discusses.
The tax relief available to landlords has changed a lot in recent times, many would say for the worse with the scrapping of the ‘Wear and Tear Allowance’ on fully furnished properties and the restriction of mortgage interest relief. Despite this there has been the implementation from April 6, 2016, of the tax relief for the replacement of domestic items.
Unlike its predecessor, the current relief is available to landlords regardless of whether the property is let furnished, part furnished or unfurnished!
It is not available to furnished holiday lets but capital allowances are available instead for these. It cannot be used in instances where rent-a-room relief is claimed but is applied equally whether profits are calculated on a cash or accruals basis. Relief is given for the cost of the replacement item however certain conditions must be met: The initial cost of purchasing the domestic item is capital and is not deductible. The relief applies to ‘domestic items’. This will include items such as: furnishings such as carpets, rugs, linens, curtains, cushions and floor coverings etc, moveable furniture such as beds, sofas, wardrobes and tables etc, kitchenware such as cutlery and crockery etc and household appliances such as televisions, washing machines, fridges and freezers. The items must be used solely by the tenant and the new item claimed must replace the old item and the previous item must no longer be available.
Relief is basically limited to like-for-like replacements so where the replacement is an improvement or upgrade on the item replaced, the deduction is capped at the cost of purchasing an equivalent to the original item.
Naturally as times change it may not be possible to exactly replace the item concerned so in these instances an element of judgement is required in deciding whether the replacement is an equivalent to the original or an improvement. In making the call, both function and quality should be taken into account. HMRC use an example of a sofa and a sofa bed on their website. They claim in their example that because the functionality of the sofa bed is different to that of the original it is not a ‘like-for-like’ replacement and as such its acquisition is of a capital nature and is hence, inter alia, not deductible. Some relief, however, is available so, for example, if the sofa cost £900 and the new sofa bed cost £1,200 relief will still be available for £900 of the cost.
Exemptions exist to the capping principle in cases where there has been rapid technological change; for example, in the case of a television. Concessions to capping also exist when items have become more energy efficient, so in these instances there is no cap provided the items purchased are of similar size or brand. In summary, you need to be very careful when claiming domestic items.
You can contact Jon Hook, at Norwich Accountancy Services by emailing email@example.com or contacting him on 01603 630882. Norwich Accountancy Services has sponsored this column.