Replacement domestic items relief
In 2016 the ‘10% wear & tear allowance’ for residential letting landlords was replaced by a deduction for expenditure on the ‘replacement of domestic items’ (eg furniture, furnishings, appliances and kitchenware) – ie, residential letting landlords can now claim a direct deduction for certain types of capital expenditure.
Whether or not you will benefit from the changes will depend on what proportion of your rents is typically spent on replacing domestic items. If you spend more than 10% of your rents on replacement items you should be better off. If you don’t you won’t.
If the new item is an improvement on the old item, the amount of the tax allowable deduction is limited to the cost of an ‘equivalent item’, but replacement by a ‘modern equivalent’, which may be an improvement in one sense, is not normally regarded as an improvement that will restrict the relief.
Example:
Replacing one fridge freezer with another is likely to be an improvement simply by virtue of the fact that technology has moved on, but it is only replacement of the old item with a ‘modern equivalent’, so the cost should therefore be fully tax deductible
However, replacing a mid range dining table with an expensive antique table would probably be regarded as an improvement and the tax deductible expense would be restricted to the cost of replacing the old mid range table on a like for like basis
You can also claim a deduction for the costs of disposing of the old item or acquiring the replacement, but you will have to reduce your claim by any amounts received on sale of the old item.
Example:
Harriet is the landlady of a house she lets out to students in Ambleside. In the 2023/24 tax year, she replaces the sofa in the house at a cost of £400 and the wardrobes at a cost of £200. She paid £50 to dispose of the old sofa, but received £20 on selling the old wardrobes.
Harriet can claim a deduction of £630; ie, the cost of the replacement items (£400 + £200), plus the cost of disposing of the sofa (£50), less the proceeds from the sale of the old wardrobe (£20).
NB. The relief is not available for expenditure on Furnished Holiday Lets (because FHLs can claim capital allowances instead), or if you claim Rent a Room Relief (because the expenditure must be incurred wholly and exclusively for the purposes of the property business).