The article on HMRC’s withdrawal of the “renewals allowance” (RA) in the February 2012 edition of Property Tax Insider has caused a lot of interest, and some questions from readers. This article seeks to deal with those questions and to give further information on the implications of the withdrawal of the RA from April 2013. First, the source of my information – this was a Technical Note published by HMRC on 6 December 2011, as part of their series on the “Withdrawal of Extra Statutory Concessions”. Another correspondent queried whether I was right to say that replacement “sinks, baths, and so on” would be within the RA, or whether replacing these “fittings” could be claimed as repairs. I must apologise that I did not make the problem I was describing clear, and it is true that replacing fittings can often be claimed as a repair. I should have made it clear that I was thinking of a situation where a claim for repairs would not be possible, because of an element of improvement. “Fittings” are such items as sinks, baths, radiators, boilers, and so on, that are attached to the fabric of the building, and the cost of replacing these (provided it is a “like for like” replacement and not a significant improvement) should still be allowable in 2013, because these replacements are classified as “repairs”. The question of whether the replacement of a fitting such as a bath is a repair or a renewal becomes important in a case where there is an improvement. A bath is an item of “plant” for tax purposes and although capital allowances are not available for plant in a “dwelling house” this means there is a choice between the RA and a claim for a repair when a bath is replaced by a landlord. If the new bath is an improvement on the old, it is not a repair. You can, however, still claim under the RA. Unlike the rules for repairs, a claim for the RA can be made on the basis of the cost of a like for like replacement, even when the actual replacement is an improvement. After April 2013, if a fitting is replaced with a better one, it will be impossible to claim anything as a repair (because of the element of improvement) and impossible to claim under the RA (which will have been abolished). The other worry is the concept of “the entirety”. With the demise of the RA, I expect this to become much more of an issue where large claims are made for repairs. The doctrine of “the entirety” was developed by the Courts and states that replacing the “entirety” of something is capital expenditure and not a repair. An obvious example would be knocking down and rebuilding a shed rather than patching it up. At present, the concept of “the entirety” does not figure much in claims for repairs, because the RA will still cover the replacement of the “entirety” of, say, a heating system, but once the RA is no longer with us, I expect to see HMRC much more alert to the possibility of using the “entirety” doctrine to disallow major repairs. Practical Tip: I would of course argue that replacing all the fittings in a bathroom was an example of a repair (unless it was also an improvement, in which case I would go for RA on a proportion of the cost equivalent to a like for like replacement), but after April 2013 I foresee some interesting debates on “entirety”, as the RA will no longer be there to ride to the rescue! James Bailey
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