Replacement of domestic items relief

Replacement of Domestic Items relief is introduced in residential property business to replace the 10% wear and tear allowance that has been abolished. The relief is available for the tax year from 6 April 2016 onward.

Domestic items

If you are calculating your income tax for rental income falls in period prior to 6 April 2016, you may claim the 10% wear and tear allowance.

From 6 April 2016, you may be able to claim a relief for the cost of replacing furniture and fittings, also called the domestic items, in your buy to let properties. The relief covers the following domestic items.

  • Movable furniture for example beds, free-standing wardrobes
  • Furnishings for example curtains, linens, carpets, floor coverings
  • Household appliances for example televisions, fridges, freezers
  • Kitchenware for example crockery, cutlery

The Replacement of Domestic Items relief is available and apply to unfurnished, part furnished or fully furnished residential property.

Replacing old furniture – beyond repair

You may claim the replacement of domestic items relief when you replace, say, a piece of broken and beyond repair furniture in your buy to let property. You buy a new furniture for your property for use by your tenants in that property.

This relief only available for replacement of domestic items not the initial cost of getting the items for your property.

Upgrade of old furniture – modern furnishing

If you are replacing your broken furniture in your buy to let, an upgrade version, say, a sofa with a sofa bed, the allowable deduction is limited to the cost of purchasing an equivalent of the original item. So if a new sofa would have cost you £400 but a sofa bed cost you £550, you could only claim the £400 as a deduction and no relief is available for the £150 difference.

When considering if the new item is an improvement on the old asset, the test is whether the replacement item is or is not, the same or substantially the same as the old item.

Changing the functionally, say from a sofa to a sofa bed, means the replacement is not substantially the same as the old item.

Changing the material or quality of the item also means the replacement is not substantially the same as the old item. Say you upgrade from synthetic fabric carpets to woolen carpets, the replacement is not substantially the same as the old item so there has been an improvement.

If the replacement item is a reasonable modern equivalent, say a fridge with improved energy efficient rating compared to the old fridge, this is not considered to be an improvement and the full cost of the new item is eligible for relief.

In the example above, if you later purchase a replacement sofa bed for use in that buy to let property, you would be able to claim the full cost of this new sofa bed. This is provided there was no improvement on the old sofa bed and the old sofa bed is no longer available for use in that property.

Calculate the replacement of domestic items relief

When calculate the relief, you must take into account if your old domestic item is sold or part exchanged for the new item, and also the incidental costs of disposing of the old item or acquiring the replacement item.

The formula to work out the relief for the new item is as follows:

  • The cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent) plus
  • The incidental costs of disposing of the old item or acquiring the replacement less
  • Any amounts received on disposal of the old item

An Example

Sheila has replaced a single, wooden framed bed in her rental property with a new double divan bed. The new double bed is an improvement on the old bed and Sheila paid £400 for it which is significantly more than the £150 it would have cost if she had replaced the old bed with a new equivalent wooden framed bed. Therefore Sheila cannot claim more than £150 of the purchase cost as a deduction. Sheila also paid an additional £20 to have the new bed delivered but managed to sell the old bed online for £30.

Sheila needs to work out how much he can claim as a deduction:

  • Cost of new replacement item limited to the cost of an equivalent new item £150
  • Add the delivery charges £20
  • Less proceed from selling the old bed £30
  • Amount deductible under Replacement of Domestic Items Relief is £140.

Furnished holiday Let

If you replace a domestic item in a property which qualifies as a Furnished Holiday Let, Replacement of Domestic Items relief is not available. You will continue to be able to claim capital allowances on these items.

Rent A room

If you use the Rent a Room Scheme, Replacement of Domestic Items relief is not available.

10% Wear and Tear allowance

You cannot claim the 10% Wear and Tear allowance while also utilizing the Replacement of Domestic Items relief.

Partnership tax

A partnership tax is a tax on a partnership. Partnership is an organization with more than one person jointly running a business. Partnership is a very popular form of business structure for many professionals, solicitors, barristers, legal advisers, consultants, accountants, architects and engineers in the United Kingdom.

Partnership tax

Ordinarily, each partner is taxed individually in a partnership. Just like as if each partner is a sole trader. In other words, partners are taxed as if they were running their own self employed business. Under the partnership tax rules, each partner is responsible for his or her own tax bill. Partners must include share of partnership profits or losses in their self assessment tax calculation and tax return.

In addition to income taxes, partners must also pay class 2 and class 4 national insurance contributions to HM Revenue and Customs.

Salaried partners are normally taxed under the employee scheme called Pay As You Earn (PAYE) scheme and are not required to submit self assessment tax return if they have no other income except their salaries.

It is the partnership responsibility to deduct the salaried partners’ income taxes and national insurance contributions and pay its over to HM Revenue and Customs.

Difference between ordinary partnership and Limited Liability Partnership

Limited Liability Partnership (LLP) is a legal body corporate by its own just like a limited company. The main benefit of trading as LLP are that partners are not personally liable for their business debt provided they are not negligent. Partners’ personal liability are limited to the amounts of capital contributed to the LLP. Partners’ personal assets are safe if the business fails in this respect. This is contrary to normal partnership rules.

There are formal compliance requirement in registering a limited liability partnership. You must submit your LLP incorporation application with Companies House.

Generally your LLP is governed by the Limited Liability Partnership Act 2000. Normal partnership is not governed by the LLP law.

For income tax purposes, partners in your LLP will be taxed as if they are in an ordinary partnership.

Pass resolution at general meeting

Voting at Annual General Meeting

Pass resolution resolution in a general meeting is by a show of hands unless the shareholders call for a poll. A poll is a vote based on the number of shares held by people rather than on a show of hands. A declaration by the chairman that the resolution is carried on a show of hands is all that is required for a resolution to be passed, but this does not apply if the shareholders call for a poll. You do not have to count the number of votes for or against on a show of hands.

Notice of annual general meetings

A private company must give a minimum notice of 14 days of a general meeting. A public company must give a minimum of 21 days notice of its Annual General Meeing unless the company’s articles specify a longer period of notice. A company may call a general meeting at shorter notice, with a majority of 90% of the voting rights in the case of a private company and 95% in the case of a public company. This does not apply to Annual General Meetings of a public limited company, where all members must agree. Notices for public limited company’ Annual General Meeting must state that the meeting is an AGM.

Companies may give notice of a meeting:

  • by electronic form
  • in hard copy form
  • by means of a website or
  • a combination of any of the above.

The notice must state the time, date and location of the meeting and any resolutions to be agreed.

You can find further information on resolutions and meetings in the Companies Act 2006.

Records of resolutions and meetings

Your company must keep minutes of all proceedings at general meetings and copies of all resolutions of shareholders passed other than at general meetings for 10 years and make them available for inspection by shareholders on request.

Many companies use the standard company registers to keep their resolutions and annual general meeting minutes. The company registers are organized into sections and very easy to use.

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