Wear and tear allowance and renewals basis: HMRC Extra Statutory Concession B47: furnished lettings
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, HMRC permits residential property landlords to claim either:
- a 10% wear and tear allowance or
- a replacement basis for plant and equipment.
Wear and tear allowance
A wear and tear allowance is calculated as 10% of the rent less (council tax and water rates, if paid). In the rare event that business rates are charged on the dwelling house, these are not deducted for the purposes of the allowance.
- 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.
Renewals basis
As an alternative to the wear and tear allowance a renewals basis can be claimed for all plant and machinery.
- The actual cost of renewing furniture, furnishings and chattels may be claimed as a deduction agianst 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.
- The cost of the original items is not expenditure on renewals and is not allowable.
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.
