The wear and tear allowance for fully furnished residential properties was abolished from April 2016.

This affected companies from 1 April 2016 and individuals and others (such as trusts and other unincorporated entities) from 6 April 2016.

Instead, for the current tax year all landlords of residential properties can deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property. For individuals this is domestic items relief.

The relief available will be:

  • the cost of a like-for-like (or nearest modern equivalent) replacement asset
  • plus any costs incurred in disposing of that asset
  • less any proceeds received for the asset being replaced.

The above deduction is not available for furnished holiday lettings because capital allowances continue to be available for these businesses.

The above deduction is also not available if the person has rent-a-room receipts in respect of the property for the tax year and rent-a-room relief applies in relation to those receipts.

If the replacement asset is substantially better or different to the asset being replaced then the deduction available is so much of the expenditure incurred on the new item as does not exceed the expenditure which would have been incurred on an item which is the same or substantially the same as the old item.

The deduction relates to the replacement of furnishings, appliances and kitchenware and does not include anything that is a fixture. Fixture means:

(a)  any plant or machinery that is so installed or otherwise fixed in or to a dwelling-house as to become part of that dwelling-house, and

(b)  any boiler or water-filled radiator installed in a dwelling-house as part of a space or water heating system.

However, replacement of fixtures such as windows, doors, roofs etc. may still be allowable expenditure if they do not represent capital expenditure.

These changes were made by the Finance Act 2016 sections 73 and 74 which effectively made amendments to:

  • Income Tax (Trading and Other Income) Act 2005 sections 311A introduced and repealed sections 308A to 308C [ITTOIA 2005] for Income Tax
  • Corporation Tax Act 2009 section 250A introduced and repealed sections 248A to 248C [CTA 2009] for Corporation Tax.

Article from ACCA In Practice