HM Revenue & Customs (HMRC) has launched a 12-week consultation on the cut of the wear and tear allowance, which was announced in the July Budget.
At present, landlords of fully furnished rental properties can claim an annual allowance of 10% of the rent they receive for general wear and tear.
From April 2016, the Government plans to replace the allowance with a tax relief system that will allow all landlords of residential property to deduct the costs that are actually incurred on replacing goods.
The new relief applies to landlords of unfurnished, part furnished and fully furnished properties, but not of furnished holiday lets.
The new scheme enables landlords to claim tax relief on “movable furniture”, for example, carpets, curtains, fridges, cookers, washing machines and televisions. If you would normally expect to get the item in a removals van, then you are likely to be able to claim for its replacement.
Integral fixtures, such as baths, sinks, boilers and fitted kitchen units, are not covered by the scheme.
The new system, however, does not seem to support betterment.
For example, if a landlord replaces a washing machine with a washer-dryer, HMRC accepts that this is an improvement. But this will not benefit the landlord. If the new washer-dryer costs £600, but the cost of a like-for-like washing machine would be £400, then the replacement relief would be £400.
This may therefore discourage landlords from replacing basic goods with better items that would benefit the tenants.
Additionally, the new system will offer relief for the cost of the replacement, but minus any proceeds received from the old item. For instance, if the old washing machine is sold for £200, the relief will reduce.
Within the consultation, the impact assessment states that the change will save £205m in its first year.
However, the change will give landlords extra administrative responsibilities, as they must keep a record of their expenditure.
Comments close on 9th October 2015 and a response document is expected later this year. Draft legislation is due before the Finance Bill 2016.
Read the consultation document here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447125/150715_Wear_and_tear_condoc.pdf.