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Tax Changes Affecting Landlords

Wednesday, April 4, 2012 Posted in: Landlords

It would appear that changes in Tax allowances for residential landlords will be subject to some significant changes from April 2013.

To date, tax legislation provides for a deduction for the cost of renewing “trade tools”. Over time this definition, which was originally intended to be specific, has been extended by concession to include replacement of items of furniture by residential landlords. If for example, a cooker is purchased when fitting out a property for residential letting, the initial capital purchase cannot be claimed for; however, when the cooker needs replacing the cost of the replacement can be claimed as a renewal. Any sales proceeds from the old cooker are deducted, and the amount claimed must be adjusted to reflect any element of improvement of the new cooker over the old one.

Under current legislation a landlord of a furnished property has a choice: he can claim the renewals allowance, or he can claim a “wear and tear” allowance calculated as 10% of the rent he receives. In some cases the 10% wear and tear allowance works out to be the better option, but in other cases the renewals allowance provides the more tax advantageous route.

From April 2013 the only relief available to residential landlords will be the 10% wear and tear allowance, and this can only be claimed for fully furnished properties, so landlords of unfurnished residential accommodation will not be able to claim any relief at all for replacing such items as cookers, sinks, baths, and so on. In terms of advancing planning those landlords who are currently using the renewals allowance should consider whether they should bring forward the replacement of any items they are due to replace in the next few years to replace them before April 2013, in order to claim the renewals allowance while they still can.

If you believe this change will impact on your tax allowances you might need to discuss this further with your accountant.

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