From 6th April 2013, HMRC have removed Extra-Statutory Concession B47 thereby removing the renewals basis for replacing assets in a furnished property letting business.
In order to avoid confusion, a furnished property is clarified in Section 308(1)(b) of IITOIA 2005 which states that the house must have “sufficient furniture, furnishings and equipment for normal residential use.” In other words, a tenant must be able to move in and live without being required to provide anything other than their clothing and food. They may choose to bring in TVs, computers and similar items, but they could live in the property comfortably without these items.
However, the definition of “normal residential use” is not clarified in the legislation and some landlords (and agents) have been known to try and stretch this definition to benefit from the generous 10% allowance. However, HMRC have always taken the view that the property should contain – at a minimum – beds, chairs, tables and a cooker. In reality, most people know what a furnished property is, when they see one and it may be the case of asking “would you move in and live there easily?”
Up to 5th April 2013, anyone letting a qualifying furnished letting property had the option of either taking a deduction against rental income for the actual cost of replacing furniture and appliances (but not the initial purchase of either category) within the property: or making a claim for the 10% wear and tear allowance against net rental income.
For 2013-14 and subsequent tax years, owners of furnished rental property will only be able to claim for the 10% allowance (Section 308A-C IITOIA 2005). This could have a significant effect on the rental income of clients where there are high turnover of tenants with high levels of replacing furnishings – for example student accommodation where furnishings are replaced more frequently.
It should be noted that there has been no change to the ability of the landlord to claim the cost of genuine repairs in the year the expense is incurred or on replacing furnishings that would be found in unfurnished properties. This will include replacements of bathroom and kitchen fittings.
The exclusion of claims to capital allowances on plant used in a dwelling-house (Section 35(2) CAA 2001) remains in place as does Section 68 IITOIA 2005 which allows the renewals basis for small tools to be claimed although this is not likely to benefit many landlords.
Extract from Taxationweb
“Fittings are such items as sinks, baths, radiators, boilers, and so on, that are attached to the fabric of the building, and the cost of replacing these (providing that it is a “like for like” replacement and not a significant improvement) should still be allowable in 2013, because these replacements are classified as “repairs”.”