The Institute of Chartered Accountants in England and Wales (ICAEW) has called for a comprehensive review of the arrangements surrounding taxation of property income.
Buy to let landlords are expected to be especially hard hit by changes to the wear and tear allowance, and with mortgage interest rates expected to rise in the near future, they could experience a nasty double blow.
The ICAEW, which has more than 128,000 members, has highlighted the expected effects of major changes to the taxation of property income in a new study: TAXREP 54/15 (ICAEW REPRESENTATION 143/15).
The report responds to the consultation paper 'Replacing Wear and Tear Allowance with Tax Relief for Replacing Furnishings in Let Residential Dwelling Houses', which was published by HM Revenue & Customs in July.
The ICAEW said: "We regret that this consultation does not refer to the original purpose of the 10% wear and tear allowance which reduced the administrative burden and simplified the tax system for landlords of furnished lettings.
“However, we accept that this method suffers from the defects identified in the consultation; it is unrelated to actual replacement costs and gives higher relief in areas where rents are higher leading to geographical differences, but it is easier to use and requires little paperwork."
Landlords who rent out unfurnished or partially unfurnished properties will be able to claim relief on replacement white goods and furnishings, although expenses of this nature that were incurred between April 2013 and April 2016 will not be included.
The proposals also currently restrict relief for furnishings that are replaced by improved items. The ICAEW believes this is another unnecessary complication that will have a possibly detrimental effect for taxpayers by increasing the administrative process.
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