In a furnished let, wear and tear of domestic items is inevitable and there will come a time when the landlord will need to provide replacements. From a tax perspective, special rules apply to provide relief for the cost of replacement domestic items. The rules only apply to residential lets, not to furnished holiday lettings.
No relief for Initial Cost
A feature of the relief is that relief is given for the cost of the replacement, not for the initial cost of providing the item.
Conditions
Tax relief for the cost of replacing a domestic item is contingent on the following conditions being met.
- The individual or company carries on a property business which includes the letting of at least one dwelling house.
- An old domestic item provided for use in the property is replaced by a new domestic item which is provided for the exclusive use of the tenants. The old item is no longer available for their use.
- A deduction for the new item would not be prohibited by the wholly and exclusively rule, but a deduction for the cost is denied, either under the accruals basis because the expenditure is capital not revenue or under the cash basis where the capital expenditure rules prohibit a deduction on the provision, alteration or disposal of a capital item for use in an ordinary residential property.
- Capital allowances have not been claimed in respect of the new item.
Conditions 3 and 4 ensure that relief is not given twice for the same expenditure, and relief is only available under the replacement of domestic items rules where relief is not otherwise available.
Domestic Items
A domestic item is an item for domestic use. HMRC provide the following illustrative list of items that would be classed as domestic items:
- moveable furniture such as sofas, tables and bed frames;
- furnishings such as curtains, carpets and rugs;
- household appliances such as fridges, freezers and washing machines; and
- kitchenware such as utensils, crockery and cutlery.
A distinction is drawn between domestic items, which qualify for relief, and fixtures which do not. Fixtures are things like plant or machinery that is fixed to the property such that it becomes part of it, and boilers or water-filled radiators installed as part of a space heating system.
Like-for-like Replacement
Relief is given, as a deduction in computing the taxable profits of the property income business, for the cost of a like-for-like replacement, and also any costs of disposing of the old item and acquiring the new item (for example, delivery costs). The deduction claimed must be reduced by any sale proceeds received in respect of the old item.
Where the replacement is superior to the original, the deduction is limited to the cost of a replacement equivalent to the old item. For example, if a fridge is replaced by a fridge-freezer, the landlord would be allowed a deduction for the cost of an equivalent fridge if this is less than the cost of the new item.
Partner note: ITTOIA 2005, s. 311A; CTA 2009, s. 250A.