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Rental property owners – The end of the renewals basis

Rental property owners – The end of the

 

renewals basis

From 6 April 2013 for individuals and 1 April 2013 for companies the renewals allowance, which allows a deduction for the replacement of free standing equipment, has been scrapped.

What does this mean for the rental property owner? The answer is, as with most tax issues, it depends!

Before April 2013 landlords of furnished residential properties had two choices, they could either

a) claim the renewals allowance for replacing items or

b) claim a “wear and tear” allowance, this is calculated as 10% of the rental income received.

Generally the 10% wear and tear allowance has been claimed as it tended to be more generous. It would appear, therefore, that the landlord of a furnished property is not adversely affected by this change.

For the landlord of an unfurnished property, however, it’s a different story.

Landlords of unfurnished properties could, prior to April 2013, only claim the renewals basis as the 10% wear and tear allowance is not available to them. This now potentially means that landlords’ of unfurnished properties have no relief for replacing items such as cookers, fridges etc.

There are a number of options available to the landlord of unfurnished property:

1) Furnish your property and in doing so change the status of the property to become a fully furnished property and claim the 10% wear and tear allowance. The landlord must ensure that the property is capable of normal occupation without the tenant having to provide their own beds, chairs, tables, sofas and kitchen appliances.

2) The landlord could ensure that there are no items of furniture in the rental property so it is completely unfurnished and then the landlord will not incur any costs to replace items of furniture. This could be done by removing items of furniture when the current tenant leaves or by selling or giving all furniture to the existing tenant. The onus is then on the tenant to replace the furniture.