One of the first questions landlords must ask themselves is whether to let their property as furnished or unfurnished. Many choose to let their property as furnished due to something known as the wear and tear allowance.
A furnished rental property commands a higher price than an unfurnished one, as the landlord has had to pay for basic furnishings. The law says that there should be enough furnishings provided in a furnished rental property to allow a tenant to move in with nothing more than their clothes. While there is no official list of what to provide, tenants can usually expect to find a cooker, dining table, chairs and a bed in each bedroom. These items remain the property of the landlord, who will expect reasonable wear and tear to them.
In the case of rental business, especially commercial properties, you’d get tax relief on your spending on “Plant and Machinery”, which is another way of saying “The essentials you need for your commercial business”. However, this law has never applied to items a landlord buys for their buy-to-let house or flat. Instead, landlords owning a domestic property were allowed a 10% tax allowance on their gross rent to put towards replacing these items, which was made statutory in 2011. This is called the wear and tear allowance.
Wear and tear allowance cannot be used for immovable items which are part of the building. This means that static items, such as a bathtub, toilet or central heating system, do not fall under the remit of the allowance. As a rule of thumb, if it can't be removed when the property is sold, it can't be included as part of the allowance.
In previous years, some landlords profited from the wear and tear allowance, for example by renting out a property in an expensive area, but only supplying cheap furniture. They would claim 10% of their expensive net rent, which would be more than enough to cover the cost of cheap furniture. To avoid this, HMRC now allow tax relief in the form of replacing items solely on a like-for-like basis.
It’s quite simple to calculate your 10% allowance, as long as you know your net rent price. Net rent is what you’re left with once you deduct any services or charges which normally get paid by the tenant, but instead are paid for by the landlord, such as council tax or water rates.
An example might look similar to this:
- Gross rent paid by tenant on a furnished property: £15,500
- Council tax (Paid by landlord): £1,600
- £15,500 – £1,600 = £13,900
- Net rent: £13,900
- 10% of £13,900 is £1,390
In this case, the landlord would be allowed to deduct a wear and tear allowance of £1,390 when working out the profit from their property. It doesn’t matter if this isn’t the exact figure spent on replacing or repairing their property in the house or flat.
The allowance can be claimed as part of the self-assessment tax return. On form SA105, where landlords declare their income from property in the UK, look for box 34.
If you’re new to property letting, you must remember that this allowance cannot be claimed “from scratch”, i.e. if you’ve bought an empty property and need to buy furniture to make it a fully furnished rental home. There’s no tax relief on your initial outlay on furniture for the rental property – only once you need to get the items replaced.