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The old law for the 10% Wear and Tear Allowance was replaced by Replacement Relief from 6 April 2016. In this article, we take a look at how wear and tear rules currently work and how landlords can claim tax relief for replacing items in their buy to let properties under the new set of rules.
Wear and tear is the gradual degradation of an asset over the period of its life through normal everyday use. This kind of wear and tear is more or less impossible to avoid and it’s important to be able to differentiate, wear and tear from damage.
Damage is something that doesn’t occur naturally over time but is caused intentionally, accidentally, or through negligence. One of the biggest issues that many landlords face is determining what constitutes damage and what constitutes fair wear and tear as this can be somewhat subjective.
An example of fair wear and tear might be a carpet being walked, small stains and general wear are to be expected. However, a carpet that is burnt or excessively stained would likely constitute damage. Landlords need to have a detailed or photographic inventory of the condition of the rental before the tenant moves in. This inventory should be reviewed and signed by the tenant along with the tenancy agreement so that they can prove the condition before and after the tenants.
Related: Tax Deductible Expenses for Landlords
The wear and tear allowance allows landlords to offset the cost of replacing movable assets when they reach the end of their designated life.
For example, examples of assets that may be covered under this allowance include:
This short list gives an idea as to what kind of assets can be claimed using the wear and tear allowance.
It’s important to note that landlords can’t claim for fixed fixtures, such as baths, sinks, or boilers. This isn’t to say that you won’t be able to reclaim any of the expense of replacing these assets, however, you can’t replace them using the wear and tear allowance. Instead, these kinds of fixtures or fittings would come under a capital allowance.
If an item is in good condition before the beginning of the tenancy but is in dire need of repair or replacement by the end of the tenancy this is more likely damage rather than wear and tear. Damage that is caused by the negligence of the tenant would see the tenant liable for the repair.
However, it’s important to note that things have a useful lifespan and you can’t expect them to last forever. For example, an old carpet that has been in the rental for 10 years would be due for replacement whether the tenant had lived in the apartment or not and its replacement costs would likely be covered by the fair wear and tear replacement relief.
In a scenario where there is debate whether the item needs cleaning, repair, or a complete replacement at the end of the tenancy an adjudicator will examine the check-in/checkout report, the statement of condition and any photos or videos in order to make an assessment of the condition of the property in relation to the original condition.
Related: A Landlords Guide to Tax on Rental Income
Deciding whether to class particular damage as fair wear and tear or to class it as damage and deduct it from the tenant’s deposit can be quite a tricky judgment call.
There are a few things to consider when making this judgement,
The 10% wear and tear allowance was scrapped in April 2016 and replaced with the replacement of domestic items relief. This relief applies to all rented properties, not just furnished homes as the 10% wear and tear allowance did. Including, landlords, companies, individuals and trusts who let out residential property.
Under this replacement relief, landlords can claim the cost of the replacement. This cost is capped, however, at the cost of a modern equivalent of the old item. You can’t in this scenario replace with a better item and claim the relief for the full value of the improved asset.
Landlords can claim:
Tenants are not responsible for fair wear and tear on the property or furnishings and as such, landlords should not look to deduct wear and tear costs from the deposit. Instead, they should claim for the replacement under the wear and tear replacement relief programme when the item is eventually replaced.
For example, if a landlord redecorates before they let their property, a few scuffs and scrapes are expected as fair usage. However, large areas of paintwork that are cracked or peeling due to the tenants’ misuse of the property would not count as fair wear and tear and the landlord could deduct the repair costs from the tenants’ deposit.
For the Replacement of Domestic Items relief to apply the house can be unfurnished, part furnished or fully furnished. However, an expense must actually be incurred on purchasing a replacement domestic item, ‘the new item’.
The new item must also be solely provided for use by the tenants in the property and the old item must no longer be available for use.
The initial cost of purchasing domestic items for a property isn’t an allowable deductible expense so no relief is available for these costs. Relief is only available for the replacement item
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