There were a number of measures in the Summer Budget that will impact the taxation of property income. These include:
- the abolition of the 10% wear and tear allowance (see details below);
- the restriction of tax relief to the basic rate (20%) for loan interest on funds raised to purchase residential property for letting. This will be phased in over four years from April 2017; and
- the current £4,250 rent-a-room allowance is to be increased to £7,500 from April 2016.
The abolition of the wear and tear relief will apply from April 2016. It will be replaced by a new replacement furniture relief. The new relief will be available to landlords of unfurnished, part furnished and furnished properties. The relief will not apply to ‘furnished holiday letting’ (FHL) businesses and letting of commercial properties, because these businesses receive relief through the Capital Allowances regime.
The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included.
Under the new replacement furniture relief landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:
- movable furniture or furnishings, such as beds or suites,
- fridges and freezers,
- carpets and floor-coverings,
- crockery or cutlery,
- beds and other furniture
Landlords of furnished residential let property considering the replacement of these qualifying items in the current tax year, 2015-16, may be advised to defer expenditure until after 5 April 2016. In this way they will still maximise their claim to the present wear and tear allowance of 10% of rents for 2015-16, and be able to claim the new replacement furniture relief from 6 April 2016.