If you rent out a furnished property then you may be entitled to claim wear and tear allowance, which is deducted from your net rents, thus reducing the taxable rental income. Capital allowances are typically claimed on plant and machinery but cannot be claimed on furniture, furnishings or fixtures within a rental property. Instead, where these are supplied by the landlord, the wear and tear allowance is intended to cover the depreciation of these.
The wear and tear allowance is calculated as 10% of the net rents – the net rents are the rents received less any charges that would typically be paid for by the tenant but are instead paid by the landlord/taxpayer, such as council tax, water and sewerage rates.
The 10% deduction is intended to cover the sort of plant and machinery that a tenant or owner-occupier would normally provide in unfurnished dwellings, but that a landlord instead provides, examples of which are listed below:
- movable furniture or furnishings, such as beds or suites
- fridges and freezers
- carpets and floor-coverings
- crockery or cutlery
- plant and machinery chattels of a type which, in unfurnished accommodation, a tenant would normally provide for himself (for example, cookers, washing machines, dishwashers)
It is important to bear in mind, however, that the wear and tear allowance does not cover the cost of the rental property itself or the costs of any improvements to the property. Nor does it apply to the cost of plant and machinery in other kinds of furnished accommodation, such as offices.
Also, if you currently claim the ‘renewals allowance’ then you cannot choose to change over to the wear and tear allowance.
If you would like to know more, then please contact Green & Co.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.