The 10% wear and tear allowance has been a handy way for landlords to claim tax relief on furnishings and fittings without the need for receipts.
As of the 6th April 2016 the wear and tear allowance will no longer exist and will be replaced by a new system where only actual costs can be claimed for. You will need to declare your expenses for furnishings and fittings on your tax return along with all of your other rental business costs.
You can still claim the 10% wear and tear allowance up to the 2015/2016 tax year and the new system applies to UK non resident landlords as well.
Fully furnished rental property tax relief
It is a decision every landlord has to make – do I aim for the higher rent with a fully furnished property or keep initial costs down with an unfurnished proposition? In most cases, the extra rental charge easily covers the cost of the furnishings themselves and there are two possible entitlements you can claim for on fully furnished lets:
- Wear and Tear Allowance – a simple 10% deduction from your net rental earnings
- Renewals Allowance – based on the like-for-like cost of replacing existing items
Do these allowances cover all rental properties?
No – only fully furnished accommodation. Unfurnished, partially furnished and fully-furnished holiday lets are not eligible.
Which items of furniture are included in the allowances?
If a property is classed as fully furnished, it means that a new tenant can move in without needing to buy any essentials such as: washing machine, dishwasher, fridge, freezer, cooker, cutlery, crockery, curtains/blinds, floor coverings (carpet), TV, linens, moveable furniture (wardrobe, bed, couch, chair, table).
How is the Wear and Tear Allowance amount calculated?
It’s surprisingly simple because it is connected to the rent charged, not the price of any items. You can claim for 10% of the net rent that you earn on fully furnished property lets.
To work out your net rent, you just take off any charges, bills or services that you pay as a landlord, such as council tax or water bills.
For example, a landlord owns 3 properties.
Property 1
- fully furnished, net rent £11,000
- 10% Wear and Tear Allowance – £1,100 (10% 0f £11,000)
Property 2
- Fully furnished, council tax included in rent
- Gross rent = £12,000 – £1,600 council tax = net rent £10,400
- 10% Wear and Tear Allowance = £1,040 (10% of £10,400)
Property 3
- Unfurnished, £9,000 net rent
- Wear and Tear Allowance not applicable
Landlord’s total Wear and Tear Allowance claim:
£1,000 (Property 1) + £1,040 (Property 2) = £2,140
This is an annual claim that can be applied regardless of how much you have actually spent on any items for your properties.
What about the Renewals Allowance?
You can claim the Renewals Allowance for items that you are replacing in your properties on a like-for-like basis. This does not cover your initial outlay for the original item. It is more difficult to calculate because it is based on the cost of each individual item. You then deduct the total of all your replacement costs from your overall profit made from the property’s rental income.
If you replace anything with an upgraded version, then you can only claim the cost of a like-for-like item. Any money you make selling an old piece of furniture is also included in the claim.
For example, an old washing machine needs to be replaced. The like-for-like cost is £250, but you decide to upgrade to a washer-dryer priced at £350. You can only claim for the like-for-like £250.
You sell an old armchair for £70.00 and replace it with a new one costing £300. You can claim for £230, (£300 – £70).
How do I make a claim for wear and tear allowance?
You need to include your claim in Box 34, Page SA105 ‘Income from UK Property’ on your Self-Assessment Tax Return.
Can I apply for both types of allowance?
No, you cannot apply for the best fit for each year. You are expected to choose either Wear and Tear or Renewals and stick with it.
How do I choose?
Many landlords consider it wise to seek professional help with this decision, as considerable savings are at stake. The Wear and Tear allowance is generally simpler to apply for as it is a basic calculation and you don’t need to find cost equivalences for individual items.
As it is connected to the amount of rent, if you put your rent up, the allowance rises accordingly. It is something that you can claim for annually, regardless of how little you actually spend on moveable furniture and furnishings in your property.
If you spend significantly more than 10% of your net rent income on these items, then you may not find this allowance the best fit for you.
Landlord allowable costs
There are additional entitlements for landlords to claim when you sell your property, which cover the replacement of the building’s fixtures (such as toilet, fitted kitchen units, bath, central heating). Again, this is a like-for-like replacement not the cost of the original item. This can be claimed alongside the Renewals or Wear and Tear Allowances.
