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LESA, The Landlords Energy Saving Allowance. The Buy to Let Tax Regime is Unkind to the Environment says Lawrenson of LettingFocus.com

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Confused about tax - you ought to be
The current tax regime for landlords is confusing and makes landlords continue to use energy inefficient boilers.
In a recent press release I pointed out how the current tax regime in the UK is vague and does little to encourage landlords to replace old boilers.
Many landlords will keep an old boiler going for longer than might be best from an environmental point of view.

Tax wise, most landlords letting furnished property have a choice. They can either opt to deduct 10% of the net rents as an annual wear and tear allowance or they can choose to wait for years until the item needs to be replaced to claim the alternative renewals deduction.
No surprise, then, that most go for the wear and tear allowance.
But what many landlords don’t realise is that the 10% deduction is given to cover the sort of assets that a tenant or owner-occupier would normally provide in unfurnished accommodation such as living room suites, fridges, cookers and washing machines.
Non moveable items like boilers don’t seem to count under this definition and so a landlord letting furnished property and claiming the 10% wear and tear deduction could replace an old boiler with a modern new efficient one and still claim the cost as a valid expense.
However, most landlords reading the standard notes on the property pages of HMRC’s Tax Return Guide would not come away with that impression.

But it gets more complex still because the current rules are unclear.
Well, HMRC will not allow a deduction for the replacement of fixtures that constitute an IMPROVEMENT.
My old mate Helen Demuth, a tax expert at prestigious city firm Smith & Williamson adds, “HMRC did not used to allow a deduction for double glazed windows since they were an improvement on single glazed windows. They now allow double glazing as a deduction.”
So, on the same basis, condensing boilers are an improvement, and like thermal insulation requirements for most windows, they are mandatory.
It would be helpful if HMRC could confirm that the costs ARE deductible because the current confusion means that when a landlord is faced with the cost of replacing an old boiler, he is more likely to try to keep it going than to replace it, especially as repair costs can also be claimed as a valid running cost. This is bad for the environment and bad for the UK’s carbon footprint.
It would be even better if HMRC could announce that they will always allow condensing boilers as a deduction when replacing existing boilers.
And even better than that would be if condensing boilers were included in the Energy Allowance (LESA) where the property has not had central heating before.
This is a guide only and should not be used as individual tax advice which will vary depending on an individual's unique circumstances. Always take tax advice from an expert tax adviser familiar with property tax issues.
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I’m David Lawrenson of LettingFocus.com - the landlord and property letting advice experts. Read More Articles on Property by David Lawrenson.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on sale and rent back.
I’m an expert freelance property writer and property speaker - and I run the well known property investment blog that you are reading now.
Come to Our Next Evening Property Event in London Evening of 18th March
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property letting advice for a fee to anyone looking to buy property for themselves or to let out. I can help private individuals with any aspect of buying property or buy to let.
What’s unique about lettingfocus.com is that we are independent property investment advisors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2009. This blog is updated once a week.
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  1. Blogger Robin Pearce | 9:58 PM |  

    The tax syetem is unfair. Imagine you buy a delapidated place & spend monmey to make it decent accomodation to produce revenue (rent). You can't claim the cost of refurbishment as a revenue expense, only as a capital expense.

    So imagine you keep it for 15 years. By the time you sell, the new kitchen & bathroom etc only ever have generated good rent. At 15 years of age they won't add much capital value to the place. Yet they were only ever claimable as a capital expense !

    It also shows the government aren't interested in encouraging landlords to provide high quality accomodation for tenants. It isn't tax efficienet to do so under the current tax rules.

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