If you rent out a property then you might be confused about how much repair work you can claim back in tax. Basically any work which is undertaken because of everyday wear and tear during a tenancy is tax deductable, as long as an item is replaced by a similar item, on a ‘like for like’ basis, when you purchase a modern day comparable. For example if you needed to replace a wooden door with a UPVC door then this would be tax deductible, as it would be viewed as a repair not an improvement.
However improvements to a property are not tax deductible, so if you wanted to create an extra room in a loft or cellar or build an extension you would not be able to claim this back against tax. If you buy a property that needs renovating in order to rent it out this too will be classed as an improvement and would not be tax deductable.
Until April this year a landlord who rented out a fully furnished property would automatically be able to claim 10% Wear and Tear allowance each year, based on gross profits and covered the cost of replacing any moveable furniture, TVs, carpets, crockery and so forth. Landlords were also able to claim under the Statutory Renewal basis for the cost of replacing ‘tools’, but this was very limited and only really covered items such as smoke detectors, light bulbs and other similar items. However since April 2016, any landlord (whether they rent out a furnished or unfurnished rental) will have to make a claim under the new renewals basis.
The Government has provided this deduction guide:
The amount of the deduction is:
- the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent) plus
- the incidental costs of disposing of the old item or acquiring the replacement less
- any amounts received on disposal of the old item
Although people renting out holiday lets or furnished rentals will lose out from these new changes, landlords renting out unfurnished properties will be able to claim for replacement of white goods, which they couldn’t do before.
For more information about these recent changes why not pop into your local branch of Goodfellows or call our team on 020 8102 0554.