When you rent a property to tenants, inevitably the day to day use of a space generates some wear and tear, no matter how considerate and careful your tenants are. Even the simple act of using a thoroughfare means that walls invariably need repainting or carpets replacing. Likewise, if you let a furnished property, its contents will likely sustain wear and tear from simple daily use, whether it is a sofa that’s lost its bounce or a fridge with a door that no longer closes quite like it used to.
To accommodate the unavoidable impact that use of a living space has on furnishings, fixtures, fittings, appliances and so on, HMRC has reformed the wear and tear allowance calculation for landlords.
The landlord wear and tear allowance enables residential landlords to deduct costs incurred in replacing furnishings, appliances and kitchenware in the property. The measure allows landlords to claim relief against the cost of replacement furnishings as a more consistent and fair way to calculate their taxable profits.
The wear and tear allowance covers the cost of new or replacement items (limited to the equivalent of the old item) and the incidental costs of disposing of old items, minus any money received in disposing of that item.
Included in the reform are a wide range of property businesses that include dwellings, with the exception of furnished holiday lettings. There are an estimated 1.4 million UK landlords who let furnished or part-furnished properties who can benefit from the tax relief permitted by the wear and tear calculation.
In the past the wear and tear calculation was 10% of the net rents from let furnished property, less charges and services (like water rates) that were met by the landlord. Now the calculation is based entirely on the documented items that have been replaced.
The wear and tear allowance for rental property might mean a little bit more paperwork for landlords, as they will need to keep a clear record of expenditure on replacement items, but this is easy enough to add to existing expense records such as repair costs.
The reform is an incentive to landlords to replace the furnishings in their properties to improve tenants’ living conditions. Having a tenant who wants to stay in your property in the longer term is valuable to landlords for whom advertising vacancies due to a high turnover of tenants can be a drain on both time and money.
Being a good landlord not only means ensuring your furnishings, fixtures and fittings are in good working order, but having the right cover for your property is important too. If you are renting a property then cover your buildings and/or contents with landlord insurance from NatWest.