Tax Relief Opportunity with Wear and Tear Allowance for Landlords

Recently there seems to have been only doom and gloom for the residential property landlord as the government announces frequent changes to the property sector. However, due to a change which comes in from 1 April 2016 (corporation tax) and 6 April 2016 (for income tax), there may be an opportunity for the well informed owner of furnished residential properties to save some tax.

From 1 or 6 April the rules in respect of how owners of furnished residential property receive tax relief for the cost of replacing furniture, furnishings, appliances is changing. Currently relief is provided through the ‘wear and tear’ allowances which effectively allows a deduction for such costs through a reduction in taxable profits equal to 10% of rental income. From April 2016 tax relief will instead be received for 100% of the costs of actual qualifying replacements of such assets, i.e. taxable profits will reduce by 100% of actual qualifying costs incurred.

Going forward whether owners are better or worse off in any tax year will depend on the level of actual expenditure incurred.

However, for a short period until the introduction of the new rules, there is a potential opportunity to increase tax relief by simply delaying the purchase of the qualifying items. By delaying the purchase until after the new rules come into play, tax relief should be received for 100% of the qualifying item whilst not reducing the wear and tear allowance available prior to April 2016.

Therefore if you are thinking about incurring expenditure on your residential furnished property, it is worth considering whether it is possible to delay this expenditure and achieve increased tax relief.

Please note that the new rules will not apply to furnished holiday lettings or where rent-a-room relief is claimed. Expenditure which represents an improvement on the old item may also not qualify and this would need to be considered if potentially relevant.

If this change is not of relevance to you, please do pass this on to anyone that you know will be affected by it. For specialist advice please do not hesitate to contact Menzies property tax expert, Lucy Mangan on lmangan@menzies.co.uk directly.

Find out more about Menzies Property & Construction sector services.