Whether or not an item of expenditure incurred in respect of a let property is allowable for tax purposes and the method of tax relief available is an area that many landlords find confusing.
Generally, business expenses are allowable provided they are incurred wholly and exclusively for the purpose of the property business and are not of a capital nature.
Pre-trading expenditure may also be claimed as a deduction on the commencement of letting, providing it is incurred within the seven-year period before letting commences and would qualify as business expenditure.
Restrictions apply where the property has any private usage during the period concerned, is unavailable for letting or is not let on a commercial basis.
It may be possible to obtain relief for capital expenditure by claiming capital allowances. Making the distinction between what constitutes revenue expenditure and what should instead be treated as capital expenditure can be particularly challenging where work carried out to a property is concerned and, in some circumstannces, it may be necessary to apportion costs between revenue and capital expenditure where there are elements of both repair and improvement.
Scrutiny of capital expenditure may also be required in order to identify those elements that qualify as plant and equipment or integral features for capital allowances purposes and those that don’t.
The availability of capital allowances depends on the terms under which the property is let. For unfurnished and furnished residential lettings, capital allowances are only available in respect of plant and equipment used for the purposes of the rental business. but not provided for use by the tenants.
Items such as furniture, furnishings and white goods provided for use by the tenant are therefore excluded. A 10% wear-and-tear allowance is however available for qualifying furnished residential lettings to compensate for this. For qualifying furnished holiday lettings, the 10% wear-and-tear allowance does not apply, but the tax reliefs are more generous with capital allowances available on plant and equipment provided for use by the tenants such as furniture, furnishings, white goods and integral features.
z Rennie Welch LLP accepts no liability on the basis of this article and detailed advice, taking into account individual circumstances, should be obtained. If you require assistance or advice in connection with any tax matter, please contact Lynn Miller at Rennie Welch on 01573 224391 or by email at firstname.lastname@example.org