Taxing Times Dec 11

I bought a buy to let property last year which I was able to let out quite quickly after buying it. I decided to fully furnish the property before letting it which cost quite a bit. I am now trying to prepare my tax return for last year and I am confused as to where I enter the cost of the furnishings on the return. Can you help? Answer:
Where a property is let fully furnished the landlord can claim either;

•    The renewals basis for the extra cost of replacing an item of furniture; or
•    A wear and tear allowance calculated as 10% of the net rents for that property

In either case the initial cost of providing furniture for the property cannot be claimed.

The net rents are calculated as the rental income received less any expenses paid by the landlord which would normally be borne by a tenant, such as water rates, heating bills or council tax. The wear and tear allowance is designed to cover ‘movable’ items such as furniture, furnishings, electrical goods, kitchenware, crockery, linen and white goods such as cooker, fridge and washing machine.

The renewals basis allows the landlord to claim relief for the cost of replacing furniture and fittings in a let property but not the original cost of the items. This covers the same items as the wear and tear allowance and it can also be claimed where the property does not qualify as ‘fully furnished’ i.e. where the landlord has only provided partial furnishings such as just white goods.

Using the renewals basis is usually more complicated to monitor than just claiming the 10% wear and tear allowance. Indeed, reducing the administrative burden was the rationale for bringing in the 10% allowance in the first place. This is because every item of furnishings must be compared to the item it is replacing to judge whether the new item includes an element of improvement, in which case the value of the improvement must be disregarded. Any scrap value of the replaced item must also be taken into account.   

For example, lets say a landlord replaces a washing machine in his let property with a washer dryer costing £600. A washing machine with no dryer would cost £250. the landlord can only claim £250 under the renewals basis as a deduction against his rental income.

Any reader interested in discussing this topic further can telephone Graham Jennings on 01344 875000 or email graham.jennings@kirkrice.co.uk

Answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.