A furnished property will generally command a higher rent than one let unfurnished. The additional rent can more than offset the cost associated with providing furnishing. A furnished property is one that that the tenant can live in normally without having to provide beds, chairs, tables, sofa, cookers etc.
Relief for the Cost of Furniture Furnishings and Fixtures
Plant and machinery capital allowances are not available in respect of furniture, furnishings or fixtures where a landlord lets a furnished residential property. However, instead the landlord can either claim a wear and tear allowance or a deduction for the net cost of replacing a particular item (known as the renewals allowance).
The 10% wear and tear allowance is not available if the property is let unfurnished or if it is only partially furnished. Nor is it available in respect of furnished holiday lettings.
Wear and Tear Allowance
The 10% wear and tear allowance has the advantage of simplicity. The allowance is given as a deduction in computing the profit from the taxpayer’s rental business and aims to provide relief for items of furniture and fixtures contained within a let furnished residential property. It is designed to cover items that a landlord would typically provide in furnished accommodation, such as:
· beds, chairs, sofas, wardrobes, tables and other items of moveable furniture;
· carpets and other floor coverings;
· crockery or cutlery;
· washing machines;
· dishwashers etc.
It is not necessary to provide every item on the list to claim the allowance. The allowance is determined by the rent charged rather than by the cost of the items provided.
Calculating the Allowance
The wear and tear allowance is simply 10% of the net rents from let furnished accommodation. Net rent is the rent from the furnished properties less charges and services that are normally paid by the tenant but which are met by the landlord. Examples would be council tax, water rates etc. If the landlord lets both furnished and unfurnished property, the allowance is only based on the rents received from the furnished properties.
Rubin lets three properties as follows:
Property Type of let Rent
12 Main Road Furnished £12,000 per annum
16 Side Road Unfurnished £8,000 per annum
Rose Cottage Furnished £14,400 per annum
Rubin pays the council tax of £1,800 a year on Rose Cottage on the tenant’s behalf.
Rubin claims the 10% wear and tear allowance in respect of the furnished properties. The allowance is calculated as follows:
Net Rent Wear and Tear Allowance
£ £ £
12 Main Road 12,000
Gross rent 14,400
Less council tax (1,800)
Net rent 12,600
Total net rent from 24,600
10% wear and tear allowance 2,460
Rubin is able to deduct a wear and tear allowance of £2,460 in computing the profits of his property rental business. The allowance is available irrespective of his actual expenditure on furniture, furnishings and fixtures.
Claiming the Allowance
The 10% wear and tear allowance is claimed on the property supplementary pages of the self-assessment tax return. The claim is made in box 34 of page SA105 (Income from UK property).
The Alternative – The Renewals Allowance
If the taxpayer does not want to claim the wear and tear allowance, he can instead claim a deduction for the actual cost of replacing particular items of furniture, furnishings or fixtures. This is known as the renewals allowance. The allowance is only available in respect of replacement items. It cannot be claimed in respect of the original purchase.
Where relief for the furniture, furnishing and fixtures in a let furnished residential property is given by means of the renewals basis, the landlord simply deducts the costs of the replacement item in calculating the profit of the property rental business.
The allowance is given for the cost of replacing like with like. Where an item is upgraded as well as replaced, a deduction is only given for the cost to the extent that it relates to an item of similar standard. When replacing old assets it will not always be possible to find the current cost of an identical replacement. In these circumstances, HMRC advise that common sense is used to find the cost of a reasonable replacement.
Mervyn replaces the sofa in the flat that he lets out. He sells the old sofa for £50. The new sofa, which is of an equivalent size, type and quality to the original, cost £500.
The proceeds from the cost of the old sofa are deducted from the cost of the new sofa. This allows Mervyn to claim a deduction on the renewals basis of £450 in computing the profit from his property rental business.
Helena replaces the washing machine in a house that she lets furnished with a washer-dryer. The washer dryer costs £400. A washing machine equivalent to the original machine would have cost £300. As Helena is not replacing like with like she cannot claim a deduction for the full cost of the washer-dryer. Instead, the deduction available under the renewals basis is limited to £300, being the cost of replacing the original washing machine with an equivalent model.
Unlike the wear and tear allowance, the renewals basis can be claimed in respect of unfurnished lets and properties that are let partially furnished.
Advantages and Disadvantages
The wear and tear allowance has a number of advantages over the renewals basis, not least in that it is simple to calculate and does not involve the hassle of finding out the cost of equivalent items each time an item is replaced. A further advantage is that it can be claimed each year regardless of the actual amount spent on replacing furniture and such like. The allowance is even available if the landlord does not replace any items in the year. As it is linked to net rent, if rents rise, so too does the available deduction.
However, the fact that the allowance is not based on actual cost may also be a disadvantage if expenditure on replacement items in a particular year is high and exceeds 10% of the net rent. The problem is further exacerbated in that whatever basis is chosen must be applied consistently. It is not possible to chop and change depending on which method gives the higher deduction.
However, with some carefully budgeting, it should be possible to claim the 10% wear and tear allowance and not end up out of pocket.
The wear and tear allowance provides relief for the depreciation associated with moveable items of furniture, furnishing and fixtures. It does not cover fixtures that are integral to the building. These are the type of fixtures that are not normally removed if the property is sold, such as baths, wash basins, toilets, fitted kitchen units, central heating systems etc. The landlord is also entitled to claim a deduction for the cost of replacing such items, less any proceeds received for the sale of the original items. As with the renewals allowance for furniture, the deduction is limited to replacing like with like and does not cover the cost of the original item.
This is given in addition to the wear and tear allowance.
By Sarah Bradford