The 10% wear & tear allowance for furnished residential lettings is set to be abolished from April 2016.

Wear & Tear Allowance Consultation

Wear and Tear Allowance was abolished on 6th April 2016, it has been replaced with a new repairs and renewals basis, this means on the actual cost of repair or renewing an item can be claimed.

However, if you have a rental property that you let as fully furnished and have not yet told HMRC about it, then you can still claim the allowance agaisnt rent for all tax years you need to notify HMRC prior to 6th April 2016.

The allowance provides a 10% deduction from the rent received, i.e. 10% of rent is tax free even if no actual expenditure has been incurred on renewing or repairing furnishings.

An issue was identified in that similar properties will receive different levels of wear & tear based on rents received, a property in London will attract a far higher rent than a similar property in Manchester, this results in a much higher deduction for a London property than a Manchester property even if actual expenditure is the same.

The allowance is only available to fully furnished property, as most residential rental property is not fully furnished most landlords do not have the facility to claim the cost of replacing any furniture or white goods in the property, this, HMRC say, is unfair.

The proposal is to allow the cost of replacing items in full, currently if you do not let a fully furnished property you cannot claim wear & tear allowance and you cannot claim the cost of replacing any furnishing or white goods.

HMRC have opened a consultation with interested parties on the new rules, if you want to express your views you can email HMRC by clicking on this link respond to consultation

The consultation runs from 17/07/2015 to 09/10/2015, the new rules will take effect from April 2016.

Landlords will not be able to claim for the initial cost of an item, but the cost of replacement will be allowed, however, if the replacement item is improved on the old one then the amount of relief available will be restricted to the what a like for like replacement would be. For example say a washing machine was replaced with a washer dryer at a cost of 700, if a like for like replacement of the old machine was 450 then relief is restricted to 450.

The renewals basis will be available to landlords of all types of residential letting, unfurnished, part and fully furnished, it will make what is currently a difficult and often grey area much simpler and landlords will be able to claim for repairs and renewals as required.

The owners of fully furnished properties who have enjoyed the relief gained from wear & tear allowance will feel the pinch, but as most residential letting property is not fully furnished then the new rules will be welcome by many landlords.