Almost half of UK landlords will be affected by the government likely replacing the existing wear and tear allowance with a tax relief system from April 2016 onwards, according to research for the National Landlords Association (NLA).
The changes are still in the consultation stage but it looks like they will be going ahead intact for the most part, primarily affecting landlords who let out fully furnished properties with extra comforts such as linen, bedding, dishwashers and crockery. Such landlords can currently deduct 10% against their net rental income as wear and tear, even if they’ve not had to repair or renew any items like these. They will hence be the ones who will lose out the most by this tax change.
On the other hand, landlords who let out part-furnished or unfurnished properties will now be able to claim tax relief back if they have to renew or repair sporadic furnishings provided in their dwellings. The snag, as some will view it, is that landlords will now have to prove that they’ve incurred costs in relation to such furnishings, whereas they could previously offset 10% against their net income regardless, by means of the wear and tear allowance.
It seems that the government deem the current wear and tear allowance to present landlords with an exploitable loophole through which some have even been able to successfully offset movable items against tax, from expensive televisions and home cinema systems to garden ornaments and even cars.
Some landlords will clearly be affected by the likely change to a tax relief system more than others, at a time when their budgets are already being squeezed by other legislative changes. Therefore, although the new system from 2016 onwards will work in the favour of many landlords renting out unfurnished properties without having to self-certify them as furnished, a number of landlords will justifiably view it as yet another restriction.
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