Posted by Simon Misiewicz on 24th May 2013
Do you make a taxable profit from your residential income?
Do you have any properties that are furnished?
There are many landlords and property investors that are doing their own self assessment.
As a result many of them are paying more tax than they actually need to.
This is why I am writing this article because I hope that you can use it to reduce your tax liability.
Where a property is let furnished the owner is not allowed to claim capital allowances on plant and equipment. However landlords can claim one of the two tax reducing initiatives:
- 10% wear and tear allowance of the net rent which provides allowances for:
- White goods
- Depreciation of plant and equipment
- Electrical goods
- Curtains, carpets, linens, soft furnishings
The net cost of replacing items in a property. An example of this is whereby a property is being refurbished and you are replacing the furniture. Please note that the cost (normally relating to the quality if the item) of the new furniture has to be the same or less than the items being replaced (1).
The following items cannot be claimed for capital allowances as they would be improvement costs and therefore capitalisable assets (2):
- wooden beams with steel girders, and
- lead pipes with copper or plastic pipes.
- re-enforced steel girders to take additional weight
Where such improvements have been made even the cost of plastering and decorations would not be permitted for Capital Allowances and the whole cost would therefore be capitalised (2).
HMRC have provided guidance where costs are incurred to improve a property but the cost can be taken to reduce the tax liability. An example is double-glazing. In the past we took the view that replacing single-glazed windows with double-glazed windows was an improvement and therefore capital expenditure, but times have changed. Building standards have improved and the types of replacement windows available from retailers have changed. We now accept that replacing single-glazed windows by double-glazed equivalents counts as allowable expenditure on repairs “ (2).
The 10% wear and tear allowance and + replacement cost rule
If a landlord is claiming 10% wear and tear, for the items previously mentioned in the bullet points above, they can also claim the replacement cost of non-removable items. In simple terms items that cannot be removed from an outgoing tenant, examples being: (1)
- Wash basins
- Shower cubicles
- Central heating systems
Additional costs that may be considered are: (2)
- exterior and interior painting and decorating,
- stone cleaning,
- damp and rot treatment,
- mending broken windows, doors, furniture and machines such as cookers or lifts,
- re-pointing, and
- replacing roof slates, flashing and gutters.
The replacement cost cannot include the labour cost of installing them. These items must be capitalised as an asset. These costs relate to:
- the cost of installing the assets for the first time in a new property, or
- the cost of replacing worn out assets in an old property that has been bought to let, or
- which you are converting to let (1).
If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing and tax implications then please Click Here To Book an “Initial Free Consultation”.