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Residential Property Letting – Reform of the wear and tear allowance

As from 6 April 2016, for income tax payers, and from 1 April 2016, for corporation tax payers, the rules relating to what you can claim in relation to the cost of replacing fixtures and fittings have changed.

The old “Wear and Tear Allowance” that allowed you to claim 10% of your rental income each year as an expense for the replacement of fixtures and fittings has now been replaced by a relief that allow landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in a property.

Bear in mind the asset must be for the use of the lessee only and the old item must no longer be available.

Further the expenditure must be of a capital nature and it then follows that capital allowances can no longer be claimed.

The amount of the deduction is:

  • The cost of the replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item plus

  • the incidental cost of disposing of the old item or acquiring the replacement less

  • any amounts on disposal of the old item.

The rationale behind these changes was in short to generate further funds for the exchequer but in the short term it should also improve tenancy conditions.

In summary landlords who have historically spent less than the 10% wear and tear allowance will have to pay more tax. Landlords who spend more than 10% of their annual rental income on replacing fixtures and fittings will pay less tax.

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