Replacement Domestic Item relief
The wear and tear allowance that allowed landlords to reduce the tax they paid on furnished property lets was withdrawn at the end of the 2015-16 tax year. The 10% deduction was available to landlords regardless of whether furnishings in their property were replaced or not.
From 5 April 2016 (1 April for Corporation Tax) the wear and tear allowance was replaced by a new relief known as the Replacement Domestic Item relief that only allows landlords the ability to claim tax relief when they actually replace furniture, furnishings, appliances and kitchenware.
The amount of the new deduction is based on:
- the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
- the incidental costs of disposing of the old item or acquiring the replacement; less
- any amounts received on disposal of the old item.
The new rules do not apply to furnished holiday lettings as capital allowances will continue to be available or to the Rent a Room scheme. HMRC’s guidance on qualifying expenses in order to claim the Replacement Domestic Item relief has been updated. The guidance also includes some helpful example case studies.