Buy To Let Tax Relief On Repairs And Replacements
There's a lot of room for interpretation ...
As we are preparing our 2016/17 tax returns, I thought it would be useful to have a refresher on the tax reliefs available in respect of repairs to and the replacement of assets in buy to let properties ...
What buy to let tax reliefs are available for repairs to and replacement of assets in properties?
copyright: andreypopov / 123rf stock photo (licensee)
Up until 5 April, 2016 landlords of furnished residential property were able to claim a 'wear and tear' allowance of 10% of the net rental as a deduction for income tax purposes.
This was a very generous allowance as on the whole, the figure calculated was higher than the actual expenditure incurred. However, the landlord of the unfurnished property could claim no relief for the replacement of furnishings.
So where are we now? Well, the wear and tear allowance was abolished as of 6 April, 2016 and instead, all landlords can claim the following:
New statutory renewals basis ...
The new statutory renewals basis will allow landlords of all residential property, whether furnished or unfurnished, to claim a deduction for the replacement of assets provided for the use by the tenant of a residential property.
To qualify the following conditions will need to be met:
The property being let out is a dwelling house
A domestic item has previously been provided for the tenant's sole use in that dwelling house and expenditure is now incurred in replacing the item
The expenditure is incurred wholly and exclusively for the property business but a deduction would otherwise be prohibited due to the item being of a capital nature
Capital allowances may not be claimed on the expenditure
Items such as furniture, furnishings, appliances and kitchenware will qualify for this relief.
The relief is available on a 'like for like' basis so any expenditure on improvements can't be claimed. HMRC has indicated that, in the event of an improvement (or upgrade), they would allow a deduction for the notional cost of replacing the item on a like-for-like basis.
The example they gave was that if a landlord replaced a washing machine with a washer-dryer, it is the notional cost for a replacement, like-for-like, washing machine that would be deducted.
The relief does not apply to furnished holiday lets because relief can already be claimed under the capital allowances regime.
Replacement of fixtures ...
With the replacement of fixtures, for expenditure on items not included as domestic items, it may be possible to claim tax relief on the basis that the expenditure is a repair.
For example, replacement of fitted kitchen elements such as built-in white goods will qualify as repairs, meaning that tax relief for the cost of these items will be available (note that free-standing white goods are covered by domestic items relief).
Similarly, the replacement of kitchen units or bathroom fittings would qualify as repairs provided that there has been a like for like replacement.
"As you can imagine, there's a lot of room for interpretation!"
I am sure this will be a regular focus for HMRC enquiries. If you would like to discuss this further, do call me on 0333 335 0427 or click here to ping me an email and let's see how I can help you.
Until next time ...
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen’s specialist knowledge in tax planning and experience ensures every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.