Tax Experts Express Confusion over New Wear and Tear Allowance
Tax specialists have expressed concerns over the new Wear and Tear Allowance system, saying that the rules are unclear.
The amendment, due to be enforced in April, will replace the current system that allows landlords of furnished properties to claim back 10% of their rental income against capital expenditure on replacements of furnishings, furniture, appliances, white goods and kitchenware.
However, the Allowance will be changed to actual expenditure, rather than an automatic 10%, next year. Draft regulations indicate that landlords will be capped on what they can claim, with the replacement being an equivalent, not an improvement.
The Association of Taxation Technicians insists: “We certainly expect to be seeking guidance on how HMRC will approach the question of whether a new item is substantially the same as the old item which it is replacing.
“If the new item is an improvement, which has to be treated for tax purposes as capital expenditure and not as a like-for-like replacement to be offset against rental income, the draft provision requires a restriction to the replacement expenditure.
“This position is particularly complicated in relation to items like white goods, where manufacturers are constantly introducing new technologies and functionality. We will be highlighting to HMRC the situations where we think that practical guidance will be needed to avoid disputed claims.”1
However, the Association does welcome some of the new rules, particularly that landlords will be able to claim against the cost of removal of old items, such as fridges and mattresses.
The proposed revisions can be viewed here: https://www.gov.uk/government/publications/reform-of-the-wear-and-tear-allowance/reform-of-the-wear-and-tear-allowance
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