Important Tax News for Landlords
Published 27/02/2013 
Our accountants have sent the following important tax news to all of their landlord clients. Please take heed and share this information with all other landlords you know.
The End of the Renewals Allowance from 6 April 2013
HMRC have announced that from 6 April 2013 allowances for the replacement of furnishings will no longer be available for landlords. Repair costs will continue to be fully allowable.
The current rules allow full deductibility of both repairs and replacement expenses against rental income in the year the expense is incurred. It is important to make two distinctions here:
Repairs vs. renewals/replacements:
If you replace an old item with a new one, it is quite clearly a ‘replacement’. Repairs costs are routinely incurred for maintenance, but if you spend more than 50% of the cost of an old item when repairing it then it may still count as a replacement rather than a repair.
Integral fixtures vs. furnishings:
‘Integral’ items are of the type that would not normally be removed by either tenant or owner if the property were vacated or sold (for example, baths, washbasins, toilets);
‘Furnishings’ include sofas, tables, suites, beds, cookers, washing machines, dishwashers, carpets, curtains, linen, crockery, or cutlery.
Although repair costs will continue to be fully allowable against income for both integral fixtures and furnishing, from 6 April 2013 allowances for replacements of furnishings will no longer be available.
Wear and tear allowance for fully furnished properties will continue to be available post 5 April 2013
Wear and tear allowance is calculated as 10% of the rent less council tax, water rates, and other services where the rental property is fully furnished. Until 5 April 2013 you can continue to use either the replacement/renewal allowance for furnishings or wear and tear allowance (not both).
From 6 April 2013 the only relief available to residential landlords will be the wear and tear allowance, and this can only be claimed for fully furnished properties, so landlords of unfurnished or partly furnished residential accommodation will not be able to claim any relief at all for replacing furnishings.
Allowance for cost of renewing integral fixtures will also continue
In addition to the wear and tear allowance, the cost of replacing or renewing integral fixtures may also be claimed against rental income. Where expenditure qualifies for this deduction, the following apply:
Expenditure on repair and renewal (including installation) of replacement fixtures may be treated as expenditure on repairs in addition to the 10% wear and tear allowance.
Replacement expenditure may only be claimed if you replace like with like. If a basic sink is replaced with a high end luxury sink, then HMRC will consider it an improvement not a renewal and it will need to be capitalised rather than expensed.
It is also worth noting, that in the case of house in multiple occupation, if the renewal expense is in a communal area such as corridors and hallways, then it is possible to claim capital allowances up to 100% in the year even after 5 April 2013.
-
Ian Hamilton says:
27/02/2013 at 17:56
-
cosmo says:
27/02/2013 at 18:23
-
Pauline says:
27/02/2013 at 18:51
-
Mark Alexander says:
27/02/2013 at 18:59
-
Janneke says:
28/02/2013 at 09:51
-
Mark Alexander says:
28/02/2013 at 10:00
-
Ian Hamilton says:
28/02/2013 at 10:14
-
Glen says:
28/02/2013 at 11:09
-
Janneke says:
28/02/2013 at 11:30
-
mark says:
28/02/2013 at 12:10
-
Neil Barlow FCCA ATT says:
28/02/2013 at 13:14
-
mark says:
28/02/2013 at 13:35
-
Michael Barnes says:
01/03/2013 at 10:30
-
Alice says:
04/03/2013 at 13:10
-
Mark Alexander says:
04/03/2013 at 13:51
-
Steven Turner-Dauncey says:
04/03/2013 at 16:52
-
Emilio Loris says:
05/03/2013 at 11:04
Leave a commentMy first thought is not to renew any white goods if they breakdown and remove them at the end of a tenancy.
What if the landlord rents white goods from a supplier?
this new tax ruling will drive housing quality into a downward spiral.
we’ve all been working to push the quality upwards, Housing Associations, Shelter, Local Housing Authorities and many individual landlords.
But without consultation, and it seems with malice aforethought, this new ruling from our beloved HMRC will destroy all this work within a matter of months.
what happens when a washing machine breaks down ? it can cost more to fix that to replace, or a fridge.
would you sleep in a broken bed that’s been badly repaired ? or worse pissed on
will this new ruling be extended, in time, to other industries ?
car tyres on a taxi ? must be repaired not replaced even when worn and a health risk and failing an MOT
how about hospital beds ? they do break.
mobile phones; cannot replace must repair even on a new contract !!
how about BBC cameras ? when destroyed filming in a war zone, will the BBC have to repair the un-repairable because they will not be able to claim a replacement on their tax return ??
will this extend, eventually to pens ? ( yes I did say pens )
your local tax inspector will have problems repairing his biro when it dries up or runs out of ink. ( I know this sounds silly but I’m all for equality. what’s good for us must be good for them )
how far will this go ?
Ok, could you just reduce the tenants rent by the cost of a replacement item for that month & they buy it? Therefore reducing your taxable income in same way?? Obviously issues then if they decide to take it with them. Sounds a very frustrating situation…..it’s bad enough that you can’t claim for any furnishings when you first start to rent a property, never mind introducing a ban to relief on replacements.
I like your thinking
(dofollow)
Mark Alexander recently posted…Crazy tenant puts landlord though hell
I can’t understand who this new ruling will benefit (other than HMRC). I guess one plus point is that tenants may want to stay longer if they have their own white goods installed in the property as it will be more expensive to move. We would have to be allowed to charge for the damage they cause getting these things in and out though!
I would also be interested to know how it would work if you rented white goods instead – this may be the answer……..
Hi Janneke, it’s interesting that two people now have mentioned renting white goods. I have been looking into that myself and so have other landlords, please see this thread >>> http://www.property118.com/index.php/white-goods-rental-for-landlords/35526/
(dofollow)
Mark Alexander recently posted…Landlords Bank Account Question
There is also the safety aspect. Who is responsible for ensuring that any gas cookers are installed by a gas safe engineer.
Say you get your gas cert done in January and a new tenant moves in July, with their own cooker. Another installation cost and cert?
I have to agree with cosmo and Jannekke. These stupid changes will do nobody any good apart from HMRC. Neither the landlord or the tenant will benefit. This will cause more problems between landlords and tenants!
What about those people who were forced to become landlords? The ones that make no profit at all and their losses were made less painful by these tax breaks. Now that’s taken away.
These changes are just going to make things harder for people. In some cases, the quality of properties will drop and some landlords may even pull out all together causing even more demand for rental accommodation.
Glen recently posted…Pet Friendly: Why landlords should take advantage of allowing pets
Thanks, Mark, that’s a useful thread on renting. This will be an easy question for someone to answer, but having not rented appliances before, is it an allowable expense, and if so, what category does it come under on the tax return?
Ian – that is a good point. You could be getting several gas safety certificates a year if you’re having a particularly bad year! And who pays for installation / disconnection if it’s not your appliance?
I called HMRC to try and identify where this had come from, and got through to a technician who was most helpful…… she was not aware of any changes in the allowances for landlords letting furnished property. I pressed her and said that my source was well informed so she agreed to discuss this with her colleagues and line manager and get back to me. When she called back, she said that “There had been no changes to the way landlords could claim that will be introduced in April this year, and that if there were they would have be announced in a budget statement”………does 118 have a hot line to number 11?
Unfortunately it is often the case that information obtained from telephone calls made to HMRC is misleading or incorrect.
By HMRC concession, if a taxpayer incurs capital expenditure on replacing plant or machinery, the taxpayer may claim a revenue deduction for the replacement expenditure (a “renewals” allowance) for the purpose of income tax. This concession enables landlords to obtain a tax deduction for the replacement of furnishings such as sofas, washing machines etc provided that the wear & tear allowance is not claimed.
This concession which can be found in HMRC’s Business Income Manual 46935 is being withdrawn from 6 April 2013 and the legislation which remains in place (s68 ITTOIA 2005) only allows the renewals allowance to be used in respect of the replacement of trade tools such as hammers, chisels etc.
The option available to the ordinary trader is to claim capital allowances on the plant & machinery on which previously the renewals allowance would have been claimed. However, this does not help the buy to let landlord who is not allowed to claim capital allowances on the furnishings in their rental properties.
@ Neil Barlow…. many thanks for clarifying this………..it is frightening that one spends 15mins trying to get through to HMRC only to find that they do not know what changes are afoot. I have made a mental note to record all telecoms with HMRC from now on…….. could save me a fortune!!!
I suggest that we all write to our MPs asking them
a) if they know about this and
b) what they are going to do about it,
and identifying it as something that will reduce the quality of PRS housing (carpets etc will not be replaced).
If you have a few properties it may be worthwhile setting up a limited company to buy white goods etc and then renting them to yourself and possibly adding in management and maintenance charges.
@Alice, now that’s very clever, I like your thinking
(dofollow)
Mark Alexander recently posted…Hounslow Council Targets Rogue Letting Agents
I fully support the previous comments. We have spent 25 plus years improving the living standards of our tenants in HMO’s. A lot of these people are on low incomes and cannot afford to buy furniture of any kind. What on earth is the governments thinking behind this?
We, like most other landlords would have no option other than to simply not replace furniture, fridges and cookers when they break down. This will undoubtedly lead in a few years time to low income rented properties being full of broken furniture and very old appliances.
As a registered HMO landlord we receive visits from local government officials who tell us all the things that we MUST provide for our tenants. This smacks of cohersion! One department tells us we must provide something and then effectively we are then going to be taxed for doing so.
I thought things were bad enough after the continual medling in our sector by the previous government. It seems the current government is just as clueless when it comes to looking into the future. Wake up Mr Cameron, you’re losing votes!
I am the leaseholder of a tenanted studio flat in a council estate
The cyclical/major works to the estate started in September 2012 and will be completed in late April or May 2013
I received the estimate and works description in mid 2012.
The council will invoice me as soon as the works are completed which means this will happen during the next financial year i.e after the 5 April 2013
Are these expenses allowable against the rental income generated during the 2012-2013 financial year?