Tax mitigation now that the 10% Wear and Tear allowance has gone?Make Text Bigger
This is a really tough one to explain but bear with me, this is the first tax year that we do not claim our 10% wear & tear allowance, but there is still a residual value of “all of the old furniture fixtures and fittings that as sole trader landlords we own personally”.
In short we own all of the old furniture fixtures and fittings but we have not been able to claim a full writing off expense for these items because we have only claimed 10% of the rents previously.
If you produce a schedule of the old furniture fixtures and fittings and place a fair value against these goods then this total value for your whole portfolio can be used as cash introduced into your property lettings business. Of course this is only a cash introduced value and cannot be used as an expense, but any future personal borrowings can now be utilised as an interest expense up to this cash introduced value subject of course to clause 24 interest relief restriction.
This is because you are in effect raising a loan to pay yourself back the cash introduced.
Probably not worth doing for the smaller landlord, but for those with several properties, say a landlord with 10 properties let fully furnished and with a furniture fixtures and fittings residual sale value of £1,000 per property then we now have £10,000 of cash introduced which means the interest on a £10,000 personal loan can now be claimed as an expense (subject of course to clause 24 interest relief restriction).
I believe that this idea can work even better for those landlords who have just incorporated their property portfolio as this cash introduced into a company can now be repaid back before company profits are calculated. Or the company just buys the old furniture fixtures and fittings off the previous landlord owner at a full expense in their limited company business.
For a landlord who has just incorporated and with 10 properties with old furniture fixtures and fittings residual value of £1,000 per property = £10,000 that no company tax has to be paid on.
Let me know what you think, I have suggested this to my accountant and he thinks its ok?
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