If you earn income from letting property in the UK, you have a responsibility to ensure that the dwelling is safe and appropriately maintained. This may require you to replace household items, such as furniture, white goods and carpets, when they are no longer fit for purpose. You may be able to claim a tax deduction for the cost of replacing these items through replacement of domestic items relief. In this article we outline how this type of tax relief works and explain how to calculate the amount you can claim as a deduction.
What is ‘replacement of domestic items relief’?
Replacement of domestic items relief allows landlords of furnished, part-furnished or unfurnished residential dwellings to claim deductions for the cost of certain household items. This means you may be able to claim tax relief if you have replaced domestic items in your rental property.
What you can claim for
Replacement of domestic items relief may cover:
- moveable furniture
- soft furnishings such as floor and window coverings
- household appliances
- kitchenware including crockery and utensils
It’s important to note that replacement relief can only be claimed where a new domestic item replaces an old domestic item that is no longer fit for purpose. The new domestic item must be for the exclusive use of the property tenant and the old item can no longer be available to them.
The amount that can be claimed in replacement relief is limited to the cost of an equivalent replacement item. If the replacement item is an improvement or upgrade on the original, you can’t claim replacement relief for the full cost. For example, if you replace a single wardrobe that cost £100 with a triple wardrobe that cost £250, you would only be able to claim £100 as a deduction.
When replacing an older item, the modern equivalent of that item will not be considered to be an improvement on the original and the total cost for this is eligible for replacement relief. For example, if you replace an old washing machine with a new model that offers similar functionality but is more efficient, the total cost can be claimed. Any disposal or delivery costs that are incurred when replacing domestic items can also be included in the deductions.
What you can’t claim for
Replacement of domestic items relief cannot be claimed for holiday lettings or if you use the Rent a Room Scheme. Replacement relief is also not applicable to the initial purchase of any household items. You can find more information and details about some additional conditions in the government’s Property Income Manual.
There are also some restrictions regarding the type of items that may be claimed for under replacement relief. Fixtures, which include any boiler or water-filled radiator, basins, toilets, baths and built-in furniture, are not considered to be domestic items and therefore cannot be claimed for.
Calculating the amount you can claim
To calculate the amount you can claim as a deduction under replacement of domestic items relief, you should:
- take the cost of the equivalent replacement item (capped at the cost of the original item)
- add this to any charges incurred when disposing of the old item or acquiring the new item. For example, collection fees by a recycling specialist, installation costs or delivery costs charged by the retailer
- deduct the amount received if the old item is sold or part-exchanged from the total
For example, Michael has purchased a new six-seater dining table for his furnished rental property at a cost of £600. There is currently a four-seater table in the property that was £400. This means the amount that can be claimed is limited to £400. Michael then pays a £20 delivery fee for the new table and sells the old table for £50. Therefore, the total amount deductible under replacement of domestic items relief is £370.
Replacement relief replaced the Wear and Tear Allowance
Replacement of domestic items relief was introduced in April 2016 to replace the Wear and Tear Allowance. The Wear and Tear Allowance meant that landlords with fully furnished properties could claim 10% of their net rent each year to contribute to the replacement of domestic items. Replacement of domestic items relief was designed to offer a fairer and more consistent system.
The Wear and Tear Allowance should not be confused with ‘fair wear and tear’, which is a separate policy that may appear within a property rental agreement. In this context, fair wear and tear relates to the condition a dwelling is left in when the tenant vacates the property. Fair wear and tear refers to any defects or degradation to the property or its contents that are deemed to have occurred as a result of reasonable use during the tenant’s rental period. For example, minor scuffing on paintwork or wearing to carpets may be considered fair wear and tear and, as such, will not result in the landlord making deductions from the deposit.
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Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.