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.

Footnotes:
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.