Wear and tear allowance and renewals basis

At a glance

Although a property letting business is a qualifying activity for capital allowances purposes, expenditure on plant and machinery for use in a let dwelling house, does not qualify for plant and machinery allowances (section 35 CAA 2001).

Instead, residential property landlords may claim either:

A 10% wear and tear allowance with extra claims available on the cost of renewing fixtures, or
Claim the replacement cost of new plant and equipment.

Note: Furnished holiday letting (FHL)

The 10% wear and tear allowance does not apply to Furnished Holiday Lettings (FHL).

Wear and tear allowance

A wear and tear allowance is calculated as 10% of the rent less council tax, water rates, and other services (of the type paid by a lessee, if paid).

When the wear and tear allowance is claimed, no further deductions are allowed for the cost of renewing moveable plant and machinery such as furniture or furnishings. These are specifically suites, beds, cookers, washing machines, dishwashers, carpets, curtains, linen, crockery, or cutlery.

Extra allowance for renewing fixtures

In addition to the wear and tear allowance, the cost of renewing fixtures (plant and machinery which becomes an integral part of the building) may also be claimed.

To qualify the fixtures must be of the type that would not normally be removed by either tenant or owner if the property were vacated or sold (for example, baths, washbasins, toilets).
Expenditure on repair and renewal (including installation) of replacement fixtures may be treated as expenditure on repairs even though the 10% wear and tear allowance has been claimed.
Replacement expenditure may only be claimed if like is replacing like with like. If a basic bath is replaced with a luxury model, HMRC will consider it an improvement not a renewal and it will need to be capitalised. Common sense must be used to Self-Assess whether a replacement is an improvement or not.
The original cost of the fixture cannot be claimed.

Replacement basis

As an alternative to the wear and tear allowance with renewals for fixtures and by concession a replacement basis can be claimed for all new plant and machinery that is purchased to replacing old plant and machinery previously acquired.

The cost of the original items is is not allowable.
The cost of renewing furniture, furnishings and chattels can be claimed as a deduction against profits.
The amount to be allowed is the actual cost of the replacements excluding any additions or improvements, and after deducting the scrap value or sale price of the items replaced.
HMRC intends to withdrawn the replacement basis from April 2013 as it is a concession. However, businesses may still be able to claim replacement expenditure if it qualfies as repairs and renewals on general principles.

HMRC example: illustrating renewals principles

Malcolm replaces a washing machine in a flat he lets. He sells the old washing machine for £20 and buys a washer dryer costing £559 to replace it. The cost of buying a new washing machine like the old one would have been £399. Malcolm deducts from the £559 both the £20 received for the old machine and the £160 that represents the difference in cost between a washing machine and a washer dryer. His renewals deduction is therefore £379.

Shared areas in flats
A block of flats or appartments comprises of several dwelling houses. Not all shared areas are treated as dwelling houses, and so it is often possible to claim plant and machinery allowances on capital expenditure incurred in these parts, see Can I back-claim capital allowances on residential property?