Traditionally, residential landlords would claim the ‘wear and tear allowance’ when renting residential property – however this allowance was abolished as of April 2016, and replaced with a ‘furniture replacements’ allowance, which is a significantly less generous tax relief. This article looks at the changes made to this aspect of renting residential property and how renting furniture and appliances can result in a full tax deduction for the cost.
What happened to the Wear and Tear Allowance – and why is it a problem?
The ‘Wear and Tear Allowance’ (WATA) was a generous tax relief available to residential landlords renting fully-furnished residential property (i.e. not holiday lets) set at 10% of ‘net’ rents (‘net’ meaning gross rent less any utilities paid on the tenant’s behalf).
The WATA covered ‘non-fixed’ items in a furnished residential property i.e. sofas, beds, tables, chairs etc. but was abolished in April 2016, after a Budget announcement in July 2015. Instead, residential landlords can now only claim for any replacement of existing items covered by the WATA.
This means that residential landlords buying furniture for the first time for a residential property will receive no tax deduction at all for the first-furnishing. For a HMO/multi-let property, especially, this can mean an important loss of tax relief if furniture and appliances have to be paid for from after-tax income. Residential landlords also can’t claim capital allowances on furniture and appliances.