Finance Bill 2016 – Property business deductions for replacement furniture

Fri 18 Dec 2015

Further to the announcement at the Summer Budget 2015, and the subsequent consultation, the Draft Finance Bill 2016 includes provisions to withdraw the ‘wear and tear allowance’ currently available to landlords of fully furnished residential property, replacing this with a deduction for the cost of replacement furniture. The ‘renewals allowance’ which is generally available to property businesses will also be withdrawn.

Conditions to be met
These new provisions will apply where:

• the property business is carried on in relation to land consisting of, or including a, dwelling house;
• expenditure is incurred on the replacement of a ‘domestic item’ within the dwelling-house which is provided for the sole purpose of the tenant;
• the expenditure is incurred wholly and exclusively for the purpose of the property business, and would otherwise be deemed to be capital expenditure; and
• capital allowances are unable to be claimed on the expenditure.

A domestic item is defined as an “item for domestic use, such as furniture, furnishings, household appliances and kitchenware” but specifically excludes any item which is a fixture (being any item which, by law, becomes part of the dwelling-house, or any boiler or water-filled radiator forming part of a heating system).

Amount of deduction
The amount of the deduction is calculated as:

• the cost of the replacement item (subject to a restriction where the ‘new’ asset is not substantially the same as the ‘old’ asset); plus
• any capital expenditure incurred in connection with the acquisition of the ‘new’ asset or the disposal of the ‘old’ assets; less
• any proceeds received (or entitled to be received) on the disposal of the ‘old’ asset.

Expenditure is excluded if it is in relation to a dwelling-house which is qualifying furnished holiday accommodation or where a claim for rent-a-room relief is made.

Effective date
These changes will apply with effect from 6 April 2016 for individuals and 1 April 2016 for companies.

For companies, where their accounting period straddles 1 April 2016, the accounting period will be treated as two separate periods, one falling before and the other commencing on that date. This apportionment between these periods should be made on a time basis, unless this produces an unjust or unreasonable result.