Landlords Wear and Tear Allowance and Repairs
David Lawrenson of LettingFocus.com explains the reason landlords like to repair things rather than have items replaced.
Some tenants may wonder why their landlord is so keen to try to repair their old washing machine, cooker or other item rather than going out and just buying a new one.
Well, the answer lies in the tax system.
Landlords Wear and Tear Allowance
Most landlords letting residential property have to claim from the taxman what’s called a “wear and tear” allowance on their fully furnished let properties (see footnote 1).
If they are letting what might reasonably described as a furnished property, this allowance is a “deduction” they can make equal to 10% of net rents (see footnote 2).
So, if the net rent is £15,000 per annum, they can knock off £1,500 per annum as a wear and tear allowance when they submit their tax return.
This allowance is designed to cover them for the average cost of replacing worn out items of moveable furniture including white goods, sofas – indeed more or less anything that could be shaken out of a property if you were able to tip the property upside down. (It does not therefore include boilers or roofs which can be claimed when repaired or replaced as a separate deduction).
What they cannot do (at least since April 2014 when the tax rules changed) is also claim the cost of a replacement item. (Landlords of furnished accommodation can either deduct the wear and tear allowance or opt for the alternative “replacement basis” under which they could claim the cost of buying an item to replace the old one. They could not opt for both however as that would be “double dipping”!).
But in addition to the wear and tear allowance landlords can also validly claim the cost of repairing an item – repairs being a completely separate line of cost.
And this is what a lot of landlords opt to do – and is the reason why, faced with an old item that perhaps really should be replaced, landlords will often prefer to try to get the item repaired, so it can be used a little longer or, alternatively, pay to take out extended warranty covers.
They know that they are getting the wear and tear allowance anyway, but they also know that if they replace an item, the cost will go straight off the bottom line, whereas, if they can get the thing fixed, the repair cost can be deducted as a valid cost.
If the washing machine can soldier on for another year, then the replacement cost can at least be pushed away into the future. And so some landlords tend to soldier on with old items that non-landlords might have replaced years ago.
1. According to some tax experts. HMRC have, on occasions, been known to ask landlords to prove that the property is indeed fully furnished – and thus able to qualify for the 10% deduction. They could ask to see inventories, for example.
2. “Net rents” means rents after bills that the tenant would normally pay but which the landlord has elected to pay are deducted. So if the tenant pays £10K a year rent and the landlord has elected to pay the council tax of £800, then that amount that would be deducted first, and the wear and tear allowance would be 10% of £9,200 = £920.
3. With effect from April 2014, landlords of non-fully-furnished accommodation (say accommodation where just the white good are provided) cannot any longer opt for the “renewals basis” either. And so, we think they will now have to think about converting to fully furnished (and thus qualifying for the 10% wear and tear allowance) or fitting integrated items wherever possible, where there does seem to be some leeway in respect of latest HMRC interpretations and guidance, which of course, may change.
Services to Businesses and the Public Sector
We advise a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers.
We help them develop and improve their services and products for private landlords.
David Lawrenson, founder of LettingFocus also writes for property portals, speaks at property events and is regularly quoted by the media.
Services for Private Landlords
We help landlords and property investors by showing them how to make money in the private rented sector using ways which are fair to tenants and which involve minimal risk.
HOME PAGE OF THIS BLOG: Blog
THE HOME PAGE OF THE MAIN SITE: http://www.LettingFocus.com
For general information on our CONSULTING SERVICES and also to find a small sample of links to where our comments have been featured in the National Press: Consultancy and Seminars
For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS: Property Advice
CLIENT TESTIMONIALS – from both organisations and private landlords: Testimonials
BUY “SUCCESSFUL PROPERTY LETTING”
Our book is the highest selling personal finance and property book in the UK. Click here to Find Out More and Buy it.
If you are from an organisation and would like to bulk buy, please ask us for special rates.
TO JOIN OUR FREE NEWSLETTER Mailing which goes to over 3,500 people (as at Jan 2013) just send an email to [email protected]
We do not spam or sell our mailing list to advertisers, though we occasionally mail landlords about good products from third parties. Please put us on your “white list” to ensure you receive our emails.
OFFERS ON PRODUCTS FOR LANDLORDS and TO ADVERTISE YOUR PRODUCTS to LANDLORDS: Landlords Resources
PERUSE LAST TEN BLOGS BY GETTING THE RSS FEED: Click Here
NEXT SEMINAR EVENTS FOR LANDLORDS: Landlord and Property Letting Seminar
Copyright of Blog: David Lawrenson 2014. Please link to us here or quote us. We actively pursue copyright infringements. The blog is updated roughly once a week.
TWITTER PAGE My thoughts on property, personal finance, plus a lot of other random things: Twitter
LINK TO THIS BLOG OR TO OUR WEBSITE