This established system allows landlords to have a tax free allowance to help cover the cost of providing a furnished letting. Landlords renting out furnished property have been allowed, in their tax returns, to set off 10% of the rent income as a notional cost of replacing furniture and fittings which qualify such as:
- movable furniture or furnishings, such as beds or suites,
- fridges and freezers,
- carpets and floor-coverings,
- crockery or cutlery,
- beds and other furniture
One key feature of this was its simplicity to administer for landlords and their advisers.
Landlords have always been able to claim instead using the renewals basis whereby they could claim for replacement items at cost in the tax year they occur. As well as being more difficult to record and claim it also meant you had to wait till you replaced items as the initial cost of furnishing a property was not allowable.
With the removal of the 10% wear and tear allowance landlords will now have to claim actual costs. In some cases, especially for larger and more expensive properties, landlords will be better off but it is likely that the majority of landlords, in our view, will be worse off with this change. One advantage may be that landlords will be happier to replace furniture more often and that would certainly be a good thing for tenants.