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Currently a ‘Wear and Tear’ allowance can only be claimed on rental property that is let as fully furnished, that is when the property includes such items as a cooker, fridge, sofa, etc.

The allowance cannot be claimed on unfurnished or partly furnished properties. The usual ‘test’ of status is whether the tenant can walk into the property and live there immediately. It would also confirm the situation if the lease included the word ‘furnished’.

The claim is an annual allowance calculated as 10% of the net rental received after deducting any costs paid for by the landlord, which are normally the tenant’s burden – such as council tax. This is a valuable relief as it means that tax relief is available without any actual expenditure having been made.

Planning Point: At the time of publishing the result of an HMRC consultation is awaited. In the consultation titled ‘Replacing Wear and Tear Allowance with Tax Relief for Replacing Furnishings in Let Residential Dwelling Houses’, it is proposed that as from 6 April 2016 the ‘Wear and Tear’ allowance will be replaced by a new relief (the ‘Replacement Furniture Relief’) and be available to all let properties apart from furnishing holiday lets.

Under this relief the cost of replacement furniture will be allowed and the 10% claim will be no more, which may increase the tax due for those landlords of furnished properties who usually claimed the 10% relief. This does, however, introduce a planning opportunity for such landlords – just for the 2015/16 and 2016/17 tax years as shown in the example.

Example:
John lets out a fully furnished property at a rent of £600 per month. Out of this £600 he pays £100, being the cost of the utility bills and the gardener each month.

He incurred no expenditure during the tax year 2014/15 and as such was allowed to claimed the ‘Wear and Tear’ allowance as follows:

Annual income = (£600 – £100 per month) x 12 months = £6,000.

Claim: £6,000 x 10% = £600.

Planning Point:  John was intending not to incur expenditure for the tax year 2015/16. However following the tenant leaving on 20 March 2016 John found that he would have to replace the cooker.

If John delays purchase of the cooker until after 6 April 2016 he will be able to claim the 10% ‘Wear and Tear’ Allowance for 2015/16 and then also claim for the cost of the replacement cooker on his Tax Return for 2016/17.