Wear and Tear is a deduction that landlords can claim to offset the cost of substituting moveable assets that have reached the end of their useful life.
Wear and tear allowances are a tax-deductible allowance for the Wear and Tear of assets used in the business that replace depreciation. These assets are listed by HM Revenue & Customs (HMRC) as follows:
- Furniture is not fitted and can be easily moved, such as beds, sofas, tables, and chairs.
- TVs, refrigerators, freezers, washing machines, cookers, and dishwashers are examples of stand-alone appliances.
- Carpets and floor coverings, such as laminate or hardwood flooring.
- Cushions and curtains are examples of soft furnishings.
- Cutlery or crockery, shelves, and other pieces of furniture
Who is eligible for the Wear and Tear Allowance?
Landlords who rent out fully furnished properties are eligible for the Wear and Tear Allowance. It does not apply to commercial, vacation rental, partially furnished, or unfurnished lodging.
What does it mean to be “fully furnished”?
According to HMRC, a fully furnished property is “capable of normal occupation without the tenant having to use their beds, tables, sofas, and other furnishings.” If some rooms are fully furnished but others are not, the property is not considered fully furnished.
As a result, the landlord would be unable to claim any Wear and Tear allowance; there is no provision for proportionality in this case.
How to calculate Wear and Tear Allowance?
Wear and tear Allowance is an alternative to the ‘renewals basis’ for residential landlords who rent out fully furnished properties. The wear and tear allowance is calculated as 10% of the rent, less council tax and water rates if paid on the tenant’s behalf. It includes the cost of replacing mobile plant and machinery, such as furniture or furnishings, for example, beds, sofas, carpets, linen, curtains, crockery.
In addition to the wear and tear allowance, an individual can claim the cost of repairing or replacing fixtures, such as a new washbasin or sink.
10% wear and tear allowance
Calculating the 10% wear and tear Allowance under the old rules was not as simple as most landlords believe.
The correct claim was for 10% of net rents from furnished properties after deducting any tenant bills paid by the landlord. These bills could have, for example, covered satellite TV, broadband, or utilities. This Allowance was abolished on April 6, 2016.
Replacement relief from April 6th 2016
The 10% Wear and Tear Allowance was discontinued out on April 6, 2016, and replaced with Replacement Relief. This relief is available for all rented properties, not only furnished homes.
Points to consider
- Replacement Relief is only available to homeowners who run a property business.
- The purchase must be for an item that will be used solely by a tenant.
- Replacement Relief does not apply to homes subject to Rent-A-Room Relief, holiday lets, or non-commercial lets (property is not let at the market rate).
- The new rules also prohibit landlords from deducting the cost of replacement tools for a rental property.