Removal of Wear and Tear Allowance to Affect 47% of Landlords

The proposed removal of the wear and tear allowance will impact on nearly half of all buy-to-let landlords, but what does the change mean for you?

In the Summer Budget back in July this year, the Chancellor announced the abolition of the 10% wear and tear allowance, with the relief to be replaced by the actual cost of new furnishings. The proposed changes will come into effect in April 2016.

Currently, landlords who let unfurnished properties can deduct 10% of their rent from their profit to account for wear and tear to furnishings, irrespective of the money they actually spend on repairs and replacements. This allows landlords to reduce their tax liability, even when the property has not been improved.

From April 2016, all buy-to-let landlords, whether they let furnished or unfurnished properties, will only receive tax relief on the actual costs of replacing the furnishings supplied. However, landlords of furnished holiday lets will continue to receive the
allowance.

**Nearly half of all landlords will be affected**

Recent research conducted by the National Landlords Association into the removal of the annual wear and tear allowance shows that almost half (47%) of landlords will feel the impact.

The research shows that currently in the UK, 24% of landlords let fully furnished properties, while 23% let a mixture of fully furnished and unfurnished properties. The new system, which is currently under consultation until 9 October 2015, will include the cost of all replacement furniture, furnishings, appliances and kitchenware provided for tenants.

This includes:
? Movable furniture and furnishings
? Televisions
? Carpets and flooring
? Fridges/freezers
? Curtains
? Linen
? Crockery and cutlery

**What do the proposals mean for landlords?**

Reforming the wear and tear tax relief is intended to remove the tax anomaly for landlords between letting a property on a furnished or unfurnished basis. It is also hoped that only
making tax relief available on the money actually spent on refurbishments, rather than receiving 10% even if no refurbishments are made, will encourage landlords to replace
furnishings on a more regular basis.

However, for now, it will be beneficial if buy-to-let landlords wait to replace old and tired furnishings until April 2016, as they can then claim relief on the cost of the expenses incurred.

**The National Landlords Association welcomes the proposals**

Commenting on the reforms, Chris Norris, head of policy at the National Landlords Association, said: “We fully understand the frustration of those landlords who let exclusively on a furnished basis as the removal of this allowance will very likely represent a
reduction in the relief they can claim.

“However, it will come as a welcome revision for those letting a mixed portfolio, unfurnished, or part-furnished properties, as the replacement system will allow them to deduct legitimate revenue expenses in the future.

The National Landlords Association broadly welcomes the proposals as they should lead to a fairer system for more landlords. However, as we transition from one system to another,
we will push to make sure any landlords who’ve made recent investments with the expectation of offsetting the cost over a number of years will not be disadvantaged.”

**The Association of Residential Letting Agents are less positive**

The Association of Residential Letting Agents (ARLA) is less welcoming of the proposals, as it believes the removal of the 10% wear and tear allowance will push home ownership beyond the reach of more tenants.

ARLA argues that landlords will not only be less inclined to buy good quality furniture and furnishings initially, but also that the subsequent reduction of tax relief could result in a rise in the price of rents. It is anticipated that landlords will try to balance their books and recoup the lost revenue with a hike in prices, further reducing a tenant’s ability to save for a deposit.

There are also some concerns about the administrative burden buy-to-let landlords will face when the new system is introduced. The ARLA says that “significant evidence” will be needed to claim the relief, and guidance must be published to clearly explain what
landlords can and cannot claim for.

**How can we help?**

For more information about how the removal of the wear and tear allowance might affect you, please get in touch with the friendly team at Martin & Co. Camberley.

t: 01276 691510
e: giles.mugford@martinco.com
w: www.martinco.com/lettingsagents/camberley