Removal of Wear and Tear Allowance Consultation by HMRC

Will someone please explain to me why the initial cost is excluded from relief. Is this perhaps covered somewhere else?

David – my understanding this is the “official” view from HMRC, with some tax advisors taking a view that the initial costs are an allowable expense. Believe this relates to judgement from Caledonian Railway Co v Banks (1880).

Jireeh thank you for your reply.

The HMRC consultation document says

“2.4 The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included.”

and it is on the basis of this paragraph that I asked the question.

Having scanned literature on the Caledonian Railway Co v Banks (1880) case I am now more confused than ever – I am not a tax expert and do not wish to be, that is why I employ an accountant – why does everything have to be so complicated?

Renewals allowances which – previously was the alternative election method and what the W&T allowance effectively reverts to – have always been just that, renewals. Initial costs of provision have always been excluded. That is one of the reasons most Landlords who let furnished property elected for the W&T tax treatment.

Now we have come full circle! The scheme is illogical, just what is the reasoning behind excluding the initial purchase?

The result of these new rules will be to discourage letting furnished accommodation. My tenants are financially challenged and desperately need furnished accommodation. I can no longer afford to supply furniture. My margins are already very low, I cannot afford for them to go negative.

2.5 states:

“Under the new replacement furniture relief landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture…………”

From that I infer that the initial cost is a capital expense.

Reply to the comment left by “David Price” at “23/07/2015 – 23:02“:

If your properties already have furniture as appears to be the case then any furniture you buy from now on will be a renewal so you will get the full allowance in the year of your spend.

As I offer unfurnished properties does this change not actually benefit me? I’ll be able to claim for carpets, painting etc?

Don’t worry, I won’t be emailing HMRC supporting the removal! They’ll get no positive reinforcement from me on any part of this damned budget!

@David – Do you not worry that your unfurnished property will be hard to rent out though if tenants can’t afford their own furniture? I rent to fairly well off professional couples who have tended to desire unfurnished as they wanted their own quality items/hand me downs and don’t have to worry about any damage. Not sure the same would/could be send of someone renting with state assistance?

Agree with David that the proposed system illogical with HMRC taking the view initial purchase is not an allowable expense, yet replacement is. Hence the view from some tax advisors that the initial cost is wholly and exclusively applied to the set up of the business and no different to other pre-investment costs. However they do not qualify as a capital cost, just revenue.

Whether to let fully furnished, part furnished or un-unfurnished is often down to local market demands and target renters.

Reply to the comment left by “Ian Cognito” at “23/07/2015 – 23:53“:

Yes, initial purchase is a capital expense.

You are buying something that weill not be used up in a short time(less than year), and which will have a value if you cease trading.
Just like a house (and you do not expect tax relief on house purchase).

You can claim capital loss on these items when you finally sell them.