As you will already be aware, for years now a “wear and tear” allowance has been given of 10% of (broadly) the gross rent. This allowance is not related to the actual cost of providing or replacing furniture or other capital items in the let property but has generally been considered a reasonable substitute for giving relief for the total costs and saves landlords from keeping exhaustive records of repair costs.
However, the Government decided last year that this system should be replaced to only give relief for the cost of replacing capital items on a like-for-like basis as and when items are replaced and evidence must be retained for each purchase. The key points to note therefore are as follows;
• The new rules will come in from April 2016
• There will be no “transitional” provisions
• The new rules will not give any relief for the initial cost of furniture or other capital items
This gives us two main points to consider for all BTL Landlords or potential BTL Landlords
The first is that any landlord contemplating a refurbishment programme involving substantial expenditure on replacing furniture, furnishings, household appliances and so on might wish to defer incurring the cost until after April 2016. Doing so will not affect the wear and tear allowance for the current (2015-16) year, but it will mean that the replacement cost will rank for tax relief after April 2016.
The second is the contradiction that a landlord buying an empty property and equipping it from scratch gets no tax relief under the new rules whereas a landlord buying an existing BTL with old worn-out furniture and replacing it more or less immediately with modern equivalents will qualify for “replacement” relief.
Sounds fair, right?!