Landlords have until October 9 to comment on proposals to get rid of the ten per cent allowance for wear and tear in favour of tax relief on replacement furnishings for rental properties.
The Government announced the proposals in its summer Budget and the consultation paper was published in July. Interested parties have been given 12 weeks to respond, with this period coming to an end in October.
The consultation outlines plans to scrap the current wear and tear allowance and replace it with tax relief that will allow residential landlords to deduct costs incurred as a result of replacing furnishings.
If the proposals go ahead, they will be introduced in 2016. For Corporation Tax purposes, they will apply from April 1, and from April 6 when applied to Income Tax.
The relief will be available to all landlords of furnished, unfurnished and part-furnished properties, although it will not apply to landlords of furnished holiday lets.
Landlords will only be able to claim tax relief on replacement furnishings. It will not be applicable to the initial cost of furnishing a property.
The relief will cover replacing furniture, appliances, kitchenware and furnishings. This includes fridges and freezers, televisions, movable furnishings and furniture, flooring and carpets, linen, curtains, cutlery, and crockery.
The tax situation for integral fixtures in a property will not change. Under the new rules, however, there will be no need to establish whether a property is classed as ‘furnished’ as all landlords will be eligible regardless as to how many furnishings are included as part of a rental – a key change to the current system.
The proposals have been welcomed by many professionals within the rental property sector, including the National Landlords Association (NLA).
The NLA is keen for transitional provisions to be put in place if the new rules are introduced. It wishes to prevent those landlords who have already invested in furniture and furnishings in the belief that they will be able to use the current allowance over future years to offset these costs from losing out.
The government claims that the new rules will improve the way in which taxation is applied to businesses working in the residential property rental sector. It is hoped that this will create a fairer and more consistent system.
Comments and opinions are being invited from individual landlords, businesses, professional bodies and tax advisers, in addition to anyone else with an interest in the subject. Feedback can be emailed to wearandtear.replacement@hmrc.
Along with calling for public responses, the government has also pledged to engage with bodies representing agents and landlords, including the Scottish Landlords Association, the National Landlords Association, the Residential Landlords Association, the Association of Residential Letting Agents, and the Landlords Association of Northern Ireland.
A response to the consultation document is to be published later this year and draft legislation is set to be revealed before the Finance Bill of 2016.
The current wear and tear allowance allows landlords of furnished properties to claim ten per cent of any rent they receive and is not affected by how much they actually have to spend on replacing furnishings in their property.