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Wear and tear allowance

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The Association of Taxation Technicians (ATT) has broadly welcomed the planned replacement of wear and tear allowance with tax relief on the cost of replacing furnishings. HMRC’s proposal is that from April 2016 the wear and tear allowance will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property.

Paul Hill, chairman of the ATT’s technical steering group, said: ‘We welcome the announcement that all landlords of residential dwelling houses will be able to claim this relief under this proposal because it will simplify the tax system. Under the current system (which was introduced in 2013), tax relief is only available on residential lettings which have been let fully furnished; and it can, at times, be tricky for landlords to ascertain whether the furniture provided results in a property being considered fully or only partly furnished. This proposed new method of tax relief will see this problem disappear.

‘The proposed new relief will mean that landlords will receive tax relief for the full cost of replacing furnishings, but no deduction for notional wear and tear. Currently, a landlord can spend nothing at all on replacing furniture in a tax year and still be entitled to claim a wear and tear deduction of 10% of their rental income.’

The ATT expressed concern for HMRC’s idea to exclude the cost of any improvement element of the replacement asset from the amount that can attract tax relief, saying it potentially led to complexity. ‘Technological changes in items like white electrical goods mean that a replacement appliance with increased functionality may actually be cheaper than the old appliance or that a like for like replacement is simply unavailable,’ Hill said. ‘Clear guidance is needed on how the new rules will apply in such situations and that guidance will need to be kept up to date.’

Issue: 1283
Categories: News