Wear and tear allowance tax question

by Readers Question

14:44 PM, 19th July 2016
About 2 years ago

Wear and tear allowance tax question

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Wear and tear allowance tax question

With the change in the wear and tear allowance, I am trying to work out the maximum I can spend in each rental property that I own for the 2016/2017 tax year that we are currently in. I’ve already replaced carpets and other furnishings in the properties and I’m trying to work out what the maximum spend on each property will be to get the 10% wear and tear allowance back.wear and tear

From what I’ve found, the limit is 10% of net rent: “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.”

My understanding (from what I have read) of this is that my net rent will be the full amount of the rent taken in. For example, if my gross rental is £20,000 a year I have 2k to spend on the property on carpets etc.

I was concerned that net rent was the number left after £20,000 minus mortgage payments, buildings insurance etc etc. Leaving me 10% of a smaller number say for taking 10% of (to pick a number) £13,000. Leaving me only 1.3k to spend on furniture and carpets.

As I am currently changing furnishings in the properties I am concerned that I spend money now over the limit that I can’t claim back.

Does that make sense?

Cheers

Scott



Comments

Neil Patterson

14:58 PM, 19th July 2016
About 2 years ago

I was not aware that there was a specific limit on the costs of replacements, but you just had to prove the costs were reasonable.

From the .Gov site >> https://www.gov.uk/government/publications/reform-of-the-wear-and-tear-allowance/reform-of-the-wear-and-tear-allowance

General description of the measure

The Wear and Tear Allowance for fully furnished properties will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.

The relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to repeal the Wear and Tear Allowance provisions and make new provision for a deduction for the replacement of furnishings.

The deduction will be available in calculating the profits of a property business which includes a dwelling-house. The deduction is available for capital expenditure on furniture, furnishings, appliances (including white goods) and kitchenware, where the expenditure is on a replacement item provided for use in the dwelling.

The amount of the deduction is:

the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent) plus
the incidental costs of disposing of the old item or acquiring the replacement less
any amounts received on disposal of the old item

This deduction will not be available for furnished holiday lettings because capital allowances will continue to be available for them.

Michael Barnes

15:47 PM, 19th July 2016
About 2 years ago

It is my understanding that there is no wear and tear allowance for 2016-2017.
You claim actual expenditure on like-for-like replacements.

10% has no meaning in this context: spend what is required on repairs and renewals and claim it as an expense (even if that is more than your gross rental income).

Donald Tramp

17:08 PM, 19th July 2016
About 2 years ago

Reply to the comment left by "Michael Barnes" at "19/07/2016 - 15:47":

Thanks guys. Looks like I've got my wires crossed and I thought that the 10% still applied. I've done a bit more digging..
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447461/150715_Wear_and_tear_condoc.pdf
As HMRC states in the document:
‘...with the current 10% allowance, the higher the rent, the larger the tax relief but in some areas of the country, 10% is not sufficient to cover the actual costs incurred. The proposal will ensure landlords can claim their actual costs and provide a level-playing field for landlords wherever they operate in the country.’

So, no upper limit to repair and replace. Thanks for helping clear that up guys.

Monty Bodkin

19:16 PM, 19th July 2016
About 2 years ago

Reply to the comment left by "Donald Tramp" at "19/07/2016 - 17:08":

Don't worry about it, the muppets that came up with this nonsense didn't understand it either.

They thought all landlords claimed the 10% wear and tear allowance.

Scary.

Dr Rosalind Beck

11:36 AM, 20th July 2016
About 2 years ago

Reply to the comment left by "Monty Bodkin" at "19/07/2016 - 19:16":

Yes, I've never claimed it. I've only ever claimed actual expenses, so this change has had no impact on me.

David Price

11:46 AM, 20th July 2016
About 2 years ago

I always claimed the 10% allowance as it saved me a great deal of paperwork often for small amounts. The loss of the allowance now means I have taken a decision not to supply any furniture or fittings as there are too many traps for the unwary. For instance furniture must have the relevant fire safety label which, if the tenant cuts it off renders the item non compliant and the landlord responsible. Much better to avoid the problem.

Donald Tramp

12:38 PM, 20th July 2016
About 2 years ago

I've always claimed the 10%.
I've taken the decision now to upgrade the standards in my rental properties. New carpets, beds, furniture etc to ensure interest in them when I come to advertise. I am trying to make a clear difference in the properties I rent compared to others in the market where it is clear to see the landlords haven't invested for many years and their properties look correspondingly shabby.


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