Wear and tear allowance for landlords reformed in Finance Bill 2016
The draft legislation announced in clauses of the Finance Bill 2016 confirms that new rules will operate in regard to the wear and tear allowance for let property.
Clause 40 of the Bill and its accompanying schedule shows that the allowance will be replaced by a deduction for the replacement of furniture for both corporate landlords and for individual landlords who let residential property that is not a qualifying furnished holiday letting business.
There will be no tax allowances for the initial costs of furnishing a property, but the outlays needed for replacement costs will be subject to relief. However, this will only apply to the extent that such an item is substantially the same as the one being replaced.
No allowance will be available for an upgrade in functionality. However, unlike the present wear and tear allowance in operation, relief will be available to landlords of unfurnished or partially furnished property.
No transitional provisions
The government will not be introducing any transitional provisions, which means that landlords of unfurnished and partially furnished residential property will not be compensated for not being able to use the renewals basis since April 2013.
There will be no deduction for when rent-a-room relief is claimed on the profits of the residential property business, and disposal proceeds of the old item will also need to be taken into account.
The new proposals do take into account that it is more likely that there will be costs involved in disposing of old items, and tax relief will be available on these expenses.