Investment Property Accountants - WARR & CO

Investment Property Accountants

Wear and Tear Allowance

Where a residential property is let fully furnished a landlord has the option to claim either a wear and tear allowance of 10% of the “net rents” or claim the renewals allowance.

The wear and tear allowance is designed to cover depreciation of plant, machinery, furniture, furnishings and fixtures within the property.

The renewals allowance allows you to claim the net cost of replacing a particular item of furniture etc, but not the cost of the original purchase.

The Wear & Tear Allowance

This allowance is only available to fully furnished properties. Where multiple properties are let out, any unfurnished rental income must be deducted from the calculation.

The calculation of the Wear & Tear allowance

The Wear and Tear allowance is calculated by taking 10% of the net rent received for the furnished residential accommodation. To calculate the net rent you deduct charges that would normally be borne by the tenant but are, in fact, borne by the taxpayer. Examples include council tax, water rates etc.

 

Example

Rental income

£10,000

less Council Tax

£450

less Water Rates

£150

Net Rents

£9,400

10% Wear & Tear Allowance

£940

What it covers

The 10% deduction is given to cover the sort of plant and machinery assets that a tenant or owner-occupier would normally provide in unfurnished accommodation. Examples include: -

movable furniture or furnishings such as beds or sofas

televisions

fridges & freezers

carpets and floor-coverings

curtains
crockery or cutlery
plant and machinery chattels of a type which in unfurnished accommodation, a tenant would normally provide for himself for example cookers, washing machines, dishwashers etc.


The 10% deduction does not depend on the inclusion of each of the above items but generally providing furnished accommodation. A furnished property is one that is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and other furnishings, cooker etc.


If the property isn’t furnished or only part furnished then the wear and tear allowance is not available.

The benefits


• A deduction is available each year and available at the outset.
• Simple to calculate.

The drawbacks


Should you choose to take the 10% wear and tear allowance, you cannot later claim for the cost of replacing assets.

However, in certain circumstances where fixtures are an integral part of the building, the net cost of renewing or repairing them are allowed. The net cost means the cost of the replacement less any amounts received for the old item.

Fixtures that are an integral part of the building are those that are not normally removed by either a tenant or owner such as baths, washbasins, toilets, central heating installations. Expenditure on renewing such items is normally a revenue repair to the building. This can be claimed even though the 10% wear and tear allowance has been claimed.

A taxpayer cannot deduct:
• the original cost of installing the fixtures.
• the extra cost of replacing a fixture with an improved version.

The Renewals allowance

The cost of replacing plant and machinery supplied with the property can be claimed as an expense where neither the 10% wear and tear allowance nor plant and machinery capital allowances are claimed. This is called the “renewals basis”.

The renewals basis covers the same kind of assets as the wear and tear allowance such as furniture, carpets, curtains, cookers, fridges etc.

The renewals allowance is also available for unfurnished property.

Summary

Whatever basis is chosen to gain relief for replacement equipment or wear and tear, this must be followed each tax year consistently. It isn’t possible to change between the wear and tear allowance and the renewals allowance from year to year.

Should you wish to discuss this article or for further information please email us or telephone Pete Edwards on 0161 4776789

Date of Article: 24th November 2008

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This domain is owned by Warr & Co Chartered Accountants which is a member of the Institute of Chartered Accountants in England & Wales (ICAEW). Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact Peter Edwards on 0161 477 6789 or email us at info@warr.co.uk

 

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