UK and Overseas Furnished Residential Lettings

For furniture and equipment provided with a furnished residential letting (excluding furnished holiday lettings) you can claim a ‘wear and tear’ allowance. The allowance is 10 per cent of the ‘net rent’ – this being the rent received less any costs you pay that a tenant would usually pay.

As an alternative to the wear and tear allowance, you can claim a ‘renewals’ allowance. This covers the cost of replacing furniture or equipment, including small items like cutlery. To work it out, take the cost of the replacement item and deduct from it:

  • the amount you sold the old one for (if you got anything for it)
  • anything extra you paid for a better one

Once you’ve chosen which of these allowances to claim for a property, you can’t switch between them from year to year.

Furnished holiday lettings

If you own a qualifying furnished holiday letting in the UK or in the European Economic Area you can claim a ‘capital allowance’ for the cost of each item of furniture and equipment you provide with the property. Or you can claim a renewals allowance (explained above). You can’t claim wear and tear allowances.

Once you make a choice for each item, you must keep to it.

All letting properties

Whatever the type of letting, you can claim a capital allowance on the cost of things that you need for running your property letting business, like cleaning and gardening equipment. You can also claim for equipment that isn’t for the use of a single let property, like a boiler that heats more than one property.

How much capital allowance can you claim?

The allowance depends on what you buy. You can usually claim 50 percent of the cost when you buy it – but sometimes 100 per cent for some environmentally friendly expenditure. Each year after that you can claim 25 percent of what’s left. HM Revenue & Customs (HMRC) changes the percentages from time to time. The allowance is deducted along with other expenses in calculating your profits.

You’ll get smaller allowances if you use the item privately or for anything other than your business.

Which year do expenses belong to?

You have to allocate expenses to the year they apply to – it doesn’t matter when you actually pay them. Sometimes you may have to allocate part of an expense to one year and part to another.

Losses

Normally, if your letting business makes a loss, you can carry it forward to a later year and offset it against your future profi ts from the same business. If it’s a UK holiday letting business you can offset your loss against all of your other income, not just your property income, for years up to and including 2009/10. For later years you can only offset your furnished holiday lettings losses against your furnished holiday lettings profi ts, of either your UK or EEA business as appropriate.

For further information see www.direct.gov.uk in respect of taxes on property and what is allowable and what is taxable.

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